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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.


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.


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

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