Zoom Analysts On Work-From-Home Boost, Churn Concerns After 'Historic' Q1 Print

Zoom Video Communications Inc ZM reported a big first-quarter beat Tuesday, but the stock reaction has been muted as investors express uneasiness over a sky-high valuation.  

The Zoom Analysts

KeyBanc Capital Markets analyst Alex Kurtz maintained a Sector Weight rating on Zoom shares.

Needham analyst Richard Valera maintained a Buy rating and upped the price target from $140 to $230.

Oppenheimer analyst Ittai Kidron maintained a Perform rating.

Cantor Fitzgerald analyst Drew Kootman maintained an Overweight rating and lifted the price target from $150 to $261.

Stifel analyst Tom Roderick maintained a Hold rating and increased the price target from $105 to $180.

Focus On Zoom's Churn, KeyBanc Says

Zoom Video's first quarter is a historic one given the 169% year-over-year revenue growth and 346% billings growth, KeyBanc analyst Kurtz said. The analyst said the revenue contribution of sub-10-person users increased from 20% in the previous quarter to 30%, indicating smaller user cases.

Investors are likely to focus on how churn plays out in the second half of the year as one-time users leave the platform, according to KeyBanc. 

Zoom Has Multiyear Growth Runway, Needham Says

Zoom Video smashed its first-quarter print and guidance, a performance not seen in 20-pls years of Needham's tech coverage, analyst Valera said.

The analyst sees two conflicting dynamics driving the company's results in the near-term: increased churn relative to historical levels and increased opportunity from both a lasting secular shift toward remote work and a larger installed base into which Phone and Room products can be sold. 

Churn will moderate and net paid user growth will reaccelerate in fiscal year 2022 and beyond, Valera said. 

"While ZM shares are clearly not inexpensive, we believe ZM has a multiyear runway of growth off its much larger base and an opportunity to double revenue again in the next 3-4 years." 

See also: PreMarket Prep Stock Of The Day: Zoom Video

We Missed Zoom's True Growth Potential, Oppenheimer Says

COVID-19 accelerated video solutions adoption by enterprises and consumers, driving top-line growth and an exceptional quarter, Oppenheimer analyst Kidron said. The analyst said customer metrics were robust, with 149% net expansion and strong user and large customer growth.

Some of the upside reflected revenue brought forward, according to Oppenheimer said. 

Additionally, the analyst sees churn rising, raising questions of Zoom's upside sustainability.

"Taken together, we're bullish on Zoom's growth opportunity (video penetrating voice/text use cases) and concede that we missed its true growth potential."

Kidron said Oppenheimer upwardly adjusted its estimates to reflect the results and guidance, but remains on the sidelines due to valuation.

Coronavirus Environment Presents Upside Potential, Cantor Says

Zoom Video provides a superior communication platform at a time when video and connectivity are becoming more important for all industries and business sizes, Cantor analyst Kootman said.

The analyst sees the COVID-19 environment as continuing to present upside potential, providing upside to estimates and increased market penetration and future cross-selling opportunities for the company's platform and products.

"We expect these impacts to continue to drive multiple expansion."

Zoom Produces a ‘Jaw-Dropper,' Stifel Says

While terming Zoom Video's quarterly performance as a "jaw-dropper," Stifel analyst Roderick said he chooses to remain on hold, primarily due to valuation.

The analyst raised two possibilities for the company going forward.

The surge in monthly customers could recede or simply drive more usage, he added.

"What will be fascinating to watch over the next two quarters is this: how much of the 1Q spike in customer adds and bookings were meant for temporary purchases, that will simply recede when work-life returns to the office?"

The company's guidance assumes some of it will, according to Stifel. 

Zoom Brand Is Here to Stay, Loup Ventures Says

Zoom delivered on a high bar, with off-the-chart user growth, Loup Ventures' Gene Munster said.

Over the past three months, Zoom has "schooled" Cisco Systems, Inc. CSCO and Microsoft Corporation MSFT in the art of building a simple and affordable web conferencing platform, he said. 

Among Munster's key takeaways from Zoom's quarterly report were: vertical growth in user additions, market share gains, as reflected by 350% increase in users, and the company's near-term focus on keeping the service available and secure.

"The Zoom brand has achieved verb status and will be around for the long-term," Munster said.

ZM Price Action

Zoom Video shares, which have gained over 200% year-to-date, were up 6.14% at $220.85 at the time of publication Wednesday. 

Related Link: Mike Khouw Sees Unusual Options Activity In Zoom Video Ahead Of Earnings

Photo courtesy of Zoom Video.