Zoom Earnings: Phone and Contact Center Still Hold Key to Growth

Narrow-moat Zoom reported strong fiscal second-quarter results that were meaningfully ahead of our expectations on both the top and bottom lines, while the full-year outlook was raised approximately in line with upside in the quarter. We see two important new and positive disclosures in that Zoom phone reached roughly $500 million on an annualized run rate basis and Zoom contact center surpassed 500 customers in just six quarters. Enterprise remains solid but continues to decelerate, while significant improvements in the online business seem to have plateaued even as management sees no change in the overall demand environment. We modestly lowered our estimates for revenue growth over the next several years based on continued deceleration in enterprise and a pause in online improvements. As a result, we are lowering our fair value estimate to $89 per share, from $95 previously. However, we still see shares as undervalued.