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Zoom Video (NASDAQ:ZM) Up On Unprecedented Results, Guidance

Tuesday, September 1, 2020 | Thomas Hughes
Zoom Video (NASDAQ:ZM) Up On Unprecedented Results And GuidanceZoom 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.

Zoom Video (NASDAQ:ZM) Up On Unprecedented Results And Guidance

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Zoom Video Communications (ZM)1.1$513.19-4.4%N/A657.94Hold$415.68
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20 "Past Their Prime" Stocks to Dump From Your Portfolio

Did you know the S&P 500 as we know it today does not look anything close to what it looked like 30 years ago? In 1987, IBM, Exxon, GE, Shell, AT&T, Merck, Du Pont, Philip Morris, Ford and GM had the largest market caps on the S&P 500. ExxonMobil is the only company on that list to remain in the top 10 in 2017. Even just 15 years ago, companies like Radio Shack, AOL, Yahoo and Blockbuster were an important part of the S&P 500. Now, these companies no longer exist as public companies.

As the years go by, some companies lose their luster and others rise to the top of the markets. We've already seen this in the last few decades with tech companies surpassing industrial and energy companies that once dominated the S&P 500. It's hard to know what the next mega trend will be that will knock Apple, Google and Amazon off the top rankings of the S&P 500, but we do know that companies won't stay on the S&P 500 forever.

We've identified 20 companies that are past their prime. They aren't at risk of a near-term delisting from the S&P 500, but they are showing negative earnings growth for the next several years. If you own any of these stocks, consider selling them now before they become the next Yahoo, Radio Shack, Blockbuster, AOL and are sold off for a fraction of their former value.

View the "20 "Past Their Prime" Stocks to Dump From Your Portfolio".

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