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Stock Analyst Update

Zoom Has Another Blowout Quarter; FVE Up to $245

Given exceptional results and strong guidance, we are once again raising our estimates, which drives our fair value estimate to $245 per share from $223. We still view shares as overvalued.

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No-moat Zoom (ZM) continues to blow past investor expectations with significant upside compared to guidance, while delivering a better outlook and higher guidance for the full year. 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 of last year. Management also disclosed 1.5 million Zoom Phone subscribers, which represents 50% growth in the last five months. 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. Given exceptional results and strong guidance, we are once again raising our estimates, which drives our fair value estimate to $245 per share from $223. We still view shares as overvalued.

Revenue grew 191% year over year to $956 million, which topped the high end of guidance of $905 million. Demand remains robust as Zoom continues to gather new customers, which contributed more to revenue growth than existing customers--unusual for a software company of Zoom’s size. Demand remains strong across all verticals and customer sizes, which we think was initially pandemic-driven but is resulting in deeper walled penetration at larger paying customers. Customers with more than $100,000 in trailing annual revenues continue to accelerate and were up 160% year over year to 1,999. Clearly larger customers added meaningfully to their seat count, but small customers contributed 37% of revenue, up from 30% a year ago. As global lockdowns ease, management expects churn to be elevated from its 4% monthly historical norm, especially for smaller customers, but notes that retention has been better than expected over the last couple of quarters and net dollar expansion remains strong at 130%.

 

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

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