Zoom Video Analysts Cautious Following Earnings Beat: 'Rich Multiple Given Implied Deceleration'

Zoom Video Communications Inc ZM shares are up 13.2% this week after the company reported better-than-expected fourth-quarter earnings numbers and issued bullish guidance for 2021.

For the fourth quarter, Zoom reported adjusted EPS of $1.22 on $882.5 million in revenue. Both numbers beat consensus analyst estimates of 79 cents and $811.8 million, respectively. Revenue was up 369% from a year ago.

Zoom also guided for fiscal 2022 revenue growth of 42%, suggesting the company will continue to put up extremely impressive growth numbers even when faced with difficult 2020 comps. Zoom’s business exploded when the pandemic hit in March 2020, forcing businesses and people to communicate online via Zoom’s video communication service.

Looking ahead to fiscal 2022, Zoom guided for adjusted EPS of between $3.59 and $3.65 and between $3.76 billion and $3.78 billion in revenue. In the near-term, Zoom guided for fiscal first-quarter adjusted EPS of between 95 cents and 97 cents on between $900 million and $905 million in revenue.

Related Link: Alibaba Analysts React To Earnings Beat: 'Strong Momentum Despite Increased Competition'

Impressive Growth Numbers: Needham analyst Richard Valera said Zoom’s success with Phone is a clear sign the company isn’t a one-trick pony.

“While we expect ZM shares to continue to be subject to volatility on rotation away from WFH names and/or concerns regarding tough comps in F2H22 and beyond, we think an enduring shift towards greater WFH and ZM's rapidly growing installed base into which it can cross-sell Phone, Rooms and future products, afford it the opportunity to double revenue again in the next 3-4 years,” Valera wrote.

Morgan Stanley analyst Meta Marshall said Zoom reported another quarter of impressive numbers, but the potential churn risk in the second half of fiscal 2022 keeps her cautions on the stock.

“We were encouraged in FQ4 by strong traction with upmarket and positive proof points with Phone, which should help Zoom trade above our base case for now, but questions of churn in 2H keep us more reserved,” Marshall wrote.

Limited Valuation Upside: KeyBanc analyst Alex Kurtz said Zoom’s 33,400 customer additions missed his target, but average revenue per user of $7,800 exceeded his expectations of $7,200.

“The focus for investors will be what's needed to support the valuation at 29x FY23E EV/Revenue,” Kurtz wrote.

Credit Suisse analyst Brad Zelnick said Zoom had a strong finish to 2020, but the stock has a “rich multiple given implied deceleration.”

“While we acknowledge upside to FY22 estimates given management’s typical conservatism, we note the pace of new business deceleration highlighted by F4Q +3$ q/q DR/cRPO growth limits the potential for meaningful upside to estimates,” Zelnick wrote.

Rosenblatt analyst Ryan Koontz said 27% sequential EMEA sales growth was impressive, but the stock is fully valued after its huge run.

“While its recent results have no industry peers, our valuation caution is based on the company’s dependence on a mix of less-sticky and high churn SMB revenues while enterprise momentum continues to build,” Kootz wrote.

ZM Ratings And Price Targets: Morgan Stanley has an Equal-Weight rating and $420 target.

Credit Suisse has an Underperform rating and $375 target.

Rosenblatt has a Neutral rating and $400 target.

Needham has a Buy rating and $540 target.

KeyBanc has a Sector Weight rating.

Zoom's stock trades around $401.30 at publication time.