Zoom Video Beats On The Top And Bottom Line
If you have doubted the impact of COVID-19 on the economy and how we function the Zoom Video (NASDAQ:ZM) 2Q results should put those doubts to rest. The company had no low-bar to hurdle, the estimates have been steadily rising for months, and yet it was able to sail by with what analysts have called “unprecedented” results. Why? The virus sealed the deal on tech, it forced Americans to rely on video-conferencing for work, school, and play and we discovered that hey, this works. It was a game-changing event for Zoom Video.
“Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom's video-first platform,” said Zoom Video’s CEO and founder Eric S. Yuan.
The Analysts Were Bullish On Zoom
The analysts were bullish on Zoom Video, just not bullish enough, but I think that is about to change. The average rating is a buy but fully half the community is still neutral. We may not see a big change in the overall mix of ratings but there is no doubt earnings, price targets, and forward projections are about to see some major revisions.
The top-line results came in at $663.5 million. That’s not really a lot for a major tech company but remember, this business was little more than a start-up less than a year ago. To put things in a better perspective, revenue grew 355% on a YOY basis and topped the consensus by nearly 100%.
The bottom-line results were equally stunning. While revenue increased so too did profitability. Income from operations, on an adjusted basis, grew more than 10X on a YOY basis and topped the consensus by nearly 100%. The GAAP EPS of $0.63 beat consensus by more than a quarter while the adjusted $0.92 beat by $0.47 aiding the company’s balance sheet and liquidity position. The company now has about $1.5 billion in cash ready to pay down debt, buy back shares, and acquire growth opportunities.
Bank of American analyst Nikolay Beliov, in his note titled “Unprecedented times continue to lead to unprecedented results” calls Zoom Video and Vaccine and a Vitamin because COVID-19 “permanently shifted” the work and school environment to a hybrid-model and elevated awareness of the cloud to a new level. His response to the release was to raise his price target to $475 from $260 and reiterate a buy rating. Oh, and he thinks the company will top $3.1 billion in revenue by 2022, four years ahead of schedule.
Zoom Video Raises Guidance
It’s not surprising that Zoom Video chose to raise its guidance for the 3rd quarter and full year 2020. What is surprising is by how much. The company sees the 2nd quarter strength carrying through into the end of the year and the analysts think this is only the beginning. The new guidance is roughly 33% above the previous target and well above the consensus. The 3rd quarter should bring in $685 million versus the $492 projected by analysts and deliver $0.74 in EPS versus the $0.35 consensus.
The Technical Outlook: Zoom(ing) Higher After Earnings
Shares of Zoom Video have been in a steady uptrend since the beginning of the year. The uptrend began picking up speed over the last few weeks, possibly driven by results from other cloud-computing operators, and began going ballistic just ahead of the 2Q release. Now, with the release in the bag, shares are up nearly 40% in the premarket and moving higher as I type. Investors looking to get into this stock are urged to wait for a pullback because it will come but don’t wait for price action to fall far because I don’t think it will. Zoom Video has experienced a fundamental change in its business that will support price action long into the future. If you already own some Zoom Video kudos to you.
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