By Emily Bary
Zoom Video Communications Inc. lived up to the hype in its first big test as a public company, and now its shares are on track for their biggest single-day gain since the video-conferencing company’s initial public offering two months back.
“This is what you want to see out of a company for the first quarter post-IPO,” wrote J.P. Morgan’s Sterling Auty. “Numbers across the board were significantly ahead of estimates, and the quarter was clean.”
Zoom topped expectations with its July-quarter revenue outlook as well, helping to send shares up 21% in morning trading Friday.
Auty was encouraged by Zoom’s commentary around its Zoom Phone product, meant to compete against traditional office phone lines and expand the company’s business beyond video conferencing. Zoom’s management highlighted several notable phone contracts on the conference call, which Auty said “speak to the legitimacy of the offering and, we believe, are very encouraging for growth moving forward.”
He calls Zoom “our favorite stock” and rates it at overweight with a $113 price target.
Opinion: Zoom Video focuses on huge market in effort to justify hefty valuation
Bernstein analyst Zane Chrane cheered the company’s “land and expand” strategy, pointing to the traction among business customers with over $100,000 in annual revenue, a segment that’s growing revenue faster than the overall company. The company also reported big growth among customers in Asia and Europe.
He rates the stock at outperform with a $107 target price.
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The latest results weren’t enough to move KeyBanc Capital Markets analyst Alex Kurtz from the sidelines, as he argued that the shares look fairly valued trading at 36 times enterprise value to estimated revenue for calendar 2020.
“Bears will point to the slowing existing customer expansion (36% vs. 56% in FY19) and argue the installed base spend is reaching saturation if Zoom Phone doesn’t ramp, he wrote, while bulls will cheer record numbers for customer additions.
Kurtz has a sector weight rating on the shares, which have climbed 32% over the past month, as the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.51% has fallen 0.3%. The stock is up more than 160% from its IPO price of $36.