Skip to Content
Stock Analyst Update

Raising Our FVE as Zoom Exceeds Expectations

We see a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform.

Mentioned:

Much as it did for the last two quarters, no-moat Zoom (ZM) continues to deliver significant upside compared with consensus expectations while delivering upside to guidance that somehow still seems conservative to us. The video-first communications platform company continues to penetrate the market by leveraging its cloud-based solutions’ ease of use and innovative features, such as OnZoom and Zapps, both introduced at Zoomtopia in November. We see a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform, and we are impressed by management’s ability to over deliver in terms of both growth and margins. We view guidance as conservative but appreciate that management is facing extreme macro uncertainty and unprecedented new business wins that have signed on as month-to-month users. Ultimately, we are once again raising our estimates, which drives our fair value estimate to $176 per share from $153. We continue to struggle with Zoom’s valuation and view shares as overvalued.

Revenue grew 367% year over year to $777 million, which blew past the high end of guidance of $690 million and well ahead of our inline estimate of $693 million. Demand remains robust as Zoom continues to gather new customers, which are contributing more to revenue growth than existing customers are--unusual for a software company of Zoom’s size. While demand was strong across all verticals, government and education were the two fastest growing areas. Customers with more than $100,000 in trailing annual revenues accelerated sharply to 136% year-over-year growth to 1,289. Clearly larger customers added meaningfully to their seat count, but small customers contributed 38% of revenue, up from around 20% over the last couple years, and an already elevated level of 36% last quarter. As the world opens back up from COVID-19 over the next several quarters, management expects churn to be elevated from its 4% monthly historical norm.

 

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.