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June 4, 2020, 6:26 a.m. EDT

Zoom stock surges 8% to record as videoconference company post ‘most impressive’ results in ‘enterprise software history’

‘It is truly without exaggeration [that] we say these are the most impressive financial results we’ve ever seen in software,’ analyst says in upgrade

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By Emily Bary


Bloomberg News/Landov
Zoom shares rallied after the company delivered better-than-expected first-quarter results Tuesday and analysts argued its forecast looks conservative.

Zoom Video Communications Inc. gained a new crop of believers Wednesday after the videoconference company’s first-quarter results came in far ahead of expectations.

At least three analysts turned bullish on Zoom’s stock /zigman2/quotes/211319643/composite ZM +2.97%  following the report, which showed that the company is capitalizing on the rush to remote working in the wake of the Covid-19 pandemic. Shares were up 7.6% in Wednesday trading.

See more: Zoom Video earnings and sales blow away expectations, stock rises toward more records

“We are upgrading our rating on Zoom from neutral to a buy after it reported what is arguably one of the best quarters in enterprise software history, led by huge accelerations in growth, both within the quarter and for FY21,” wrote D.A. Davidson’s Rishi Jaluria. “It is truly without exaggeration [that] we say these are the most impressive financial results we’ve ever seen in software, and likely one of the best in the history of enterprise software.”

Jaluria is bullish that Zoom can keep the momentum alive even as lockdowns intended to curtail the spread of the viral outbreak ease and employees return to physical offices.

The analysts cited optimism for new use cases for Zoom in education and telemedicine as reason for his sanguine outlook.

“While we certainly don’t want to dismiss competitive concerns, especially from Microsoft and Google, we believe Zoom’s scalable technology and ease of use have created a strong moat,” he wrote, while raising his price target to $240 from $150.

Opinion: Zoom’s astounding quarter shows it expects to be a force even after workers go back to the office

Jaluria wrote that Zoom “is no longer the most expensive stock in software” as its 33x multiple of enterprise value to estimated 2020 calendar year revenue is lower than that of Coupa Software Inc. /zigman2/quotes/209884077/composite COUP +1.33% , Okta Inc. /zigman2/quotes/210420951/composite OKTA +2.67% , Shopify Inc. /zigman2/quotes/209033712/composite SHOP +2.90% , and DataDog Inc. /zigman2/quotes/214127379/composite DDOG +3.05%  

RBC Capital Markets analyst Alex Zukin also sees new market opportunities ahead. The company has an installed base of 265,000 customers with 10 or more employees, he predicts, leaving the videoconferencing company with ample chances to cross-sell its Zoom Phone and Zoom Rooms services.

“In short, we believe the answer is yes, there is still money to be made in the stock,” wrote Zukin, who upgraded the stock to outperform from sector perform and upped his price target to $250 from $125.

He said that Zoom’s implied forecast calls for flat sequential revenue growth in the second half but that management’s assumptions appear to be conservative as the company expects higher churn.” We believe there is also a case to be made that churn could actually improve in 2H given Zoom’s technologies may be even more important today than they were just three months ago,” Zukin argued.

FBN Securities analyst Shebly Seyrafi upgraded the stock as well, cheering Zoom’s market opportunity and arguing that the forecast for the second half of the year looks conservative.

“There is a basket of stay-at-home stocks that have outperformed the market since the Covid-19 pandemic began, but we would argue that ZM is perhaps the purest stay-at-home stock,” wrote Zukin, who raised his rating on the shares to outperform from sector perform and increased his price target to $250 from $130.

Read: Welcome back, cubicles? Longtime Silicon Valley CEO says coronavirus could kill the open office

While more relaxation of lockdown restrictions could mean that more employees will return to the office in the coming months, Seyrafi thinks Zoom will remain a valuable tool for companies as many workers have come to appreciate the flexibility for remote working. He also sees “several large trillion-dollar industries, such as business travel and commercial real estate” in which Zoom can capitalize on.

As for Zoom’s forecast, he acknowledged concerns about heightened churn due to more monthly contracts that have been signed recently, though he made the case that Zoom may also be able to see better average revenue per user in the last six months of 2020 if there is more of a shift back toward annual contracts.

Not all analysts were ready to jump on the bandwagon after the results. “Going forward, exposure to multiple growth levers (new customer growth and use cases, upselling, cross-selling Rooms/ Phones, international expansion, etc.) leaves us feeling positive,” wrote Oppenheimer’s Ittai Kidron. "However, we admit we likely missed an entry point earlier this year and remain Perform-rated on valuation.”

Of the 31 analysts tracked by FactSet who cover Zoom’s stock, 14 now rate it at buy, 12 rate it at hold, and five rate the company a sell, with an average price target of $197.52, below its Wednesday trading level around $221.

Zoom shares have added 62% over the past month as the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.28%  has increased 10%.

/zigman2/quotes/211319643/composite
US : U.S.: Nasdaq
$ 237.90
+6.86 +2.97%
Volume: 2.20M
Aug. 12, 2020 11:56a
P/E Ratio
1,386
Dividend Yield
N/A
Market Cap
$65.18 billion
Rev. per Employee
N/A
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/zigman2/quotes/209884077/composite
US : U.S.: Nasdaq
$ 285.31
+3.75 +1.33%
Volume: 308,925
Aug. 12, 2020 11:56a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.89 billion
Rev. per Employee
$312,564
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/zigman2/quotes/210420951/composite
US : U.S.: Nasdaq
$ 201.42
+5.24 +2.67%
Volume: 589,355
Aug. 12, 2020 11:55a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$24.45 billion
Rev. per Employee
$255,768
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/zigman2/quotes/209033712/composite
US : U.S.: NYSE
$ 1,000.16
+28.17 +2.90%
Volume: 967,125
Aug. 12, 2020 11:56a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$116.76 billion
Rev. per Employee
$268,307
loading...
/zigman2/quotes/214127379/composite
US : U.S.: Nasdaq
$ 77.99
+2.31 +3.05%
Volume: 1.84M
Aug. 12, 2020 11:56a
P/E Ratio
8,383
Dividend Yield
N/A
Market Cap
$23.08 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,376.25
+42.56 +1.28%
Volume: 909.44M
Aug. 12, 2020 11:56a
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Emily Bary is a MarketWatch reporter based in New York.

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