Zoom Had Disappointing Quarter, Faces Transition Year: Here's Why Some Analysts Are Cutting Price Targets

Video communications company Zoom Video Communications Inc ZM reported earnings per share (EPS) that beat Street estimates and revenue which missed Street estimates on Monday. Analysts sized up the latest quarterly report and the company’s guidance.

The Zoom Video Analysts: JMP Securities analyst Patrick Walravens maintained a Market Perform rating and had no price target.

Benchmark analyst Matthew Harrigan had a Buy rating and lowered the price target from $128 to $118.

RBC Capital Markets analyst Rishi Jaluria had an Outperform rating and lowered the price target from $150 to $130.

Mizuho analyst Siti Panigrahi had a Buy rating and lowered the price target from $190 to $120.

Morgan Stanley analyst Meta Marshall had an Overweight rating and lowered the price target from $140 to $130.

Needham analyst Ryan Koontz had a Hold rating and no price target.

Related Link: Zoom Video Investors Pull Back On Q2 Earnings: EPS Beat, Revenue Miss, Guidance Update And More

The Analyst Takeaways: JMP Securities' Walravens called the report from Zoom “worse than expected” and pointed to weakness in the online segment for the company. The company also saw the sixth consecutive quarter of deceleration, the analyst pointed out.

“Zoom continues to have terrific easy-to-use products, including Zoom Phone, and the enterprise business remains healthy with 27% year-over-year growth, but overall revenue results were disappointing,” Walravens said.

Benchmark's Harrigan also noted the results from Zoom were disappointing.

But, the analyst maintained a Buy rating with traction gained in several products for the company.

“We are not surprised by the adverse reaction (in share price) but actually see Zoom gaining faster than anticipated traction in numerous product areas including Zoom Phone, crucial Zoom Contact Center and Zoom IQ for Sales,” Harrigan said.

Zoom Phone passed the four million seats mark in August and closed two deals of more than 125,000 seats near the end of the quarter, highlighting the potential for the analyst.

Harrigan said management has put an emphasis on new initiatives to offset the online segment.

RBC Capital Market's Jaluria called the second quarter results weak and pointed to the company’s lowered guidance pressuring shares.

“Although we were impressed by phones performance, online revenue was worse than feared, with a tough new-logo environment and some churn more than offsetting lukewarm results from enterprises and strength from phones,” Jaluria said.

The analyst points to the company’s guidance not factoring in macro trends getting worse, which could be something for investors to watch.

“Stepping back, we were mixed on the quarter with strong phones performance making us positive on long-term growth potential in the name while higher investments and online weakness likely keep near term outlook rocky at best.”

Mizuho's Panigrahi lowered the price target on shares but sees a long-term outlook better than several others have pointed to.

“We continue to view FY23 as a transition year as Zoom invests to build a durable, post-pandemic growth profile through multiple growth levers (Zoom Phone, Zoom Rooms, Contact Center),” Panigrahi said.

The analyst saw more customers switching from free to paid thanks to a focus on the cutoff of a 40-minute limit for free users.

Morgan Stanley's Marshall said bears were rewarded by Zoom’s update guidance and the enterprise business weakness.

“We remained Overweight given the profitability of the business and believe that any guide down on the top line would be offset by a more positive outlook on operating margins,” Marshall said.

The analyst sees the company’s Zoomtopia in November as a future event to provide a deeper look at the future of the company.

“While investors like to point to competitive threats on the enterprise business, the business actually outperformed our expectations in the quarter.”

Needham's Koontz would like to see Zoom be more aggressive on the merger and acquisition front with $5.5 billion in cash and declining values of software companies.

“With top-line growth stalled, we remain fairly cautious on meaningful re-acceleration until product diversification improves,” Koontz said.

ZM Price Action: Zoom shares were down 16.54% to $81.32 on Tuesday at market close. After-hours trading saw the stock down 0.11% at $81.23.