The Street Mostly Agrees: Zoom Media Crushed Q2, But Some Have Valuation Concerns

The video-first, unified communications platform company Zoom Video Communications Inc ZM reported second-quarter results Thursday that were highlighted by revenue that nearly doubled year-over-year and a surprise profit.

Here's how the Street reacted. 

JMP: Much To Like

Zoom Media reported "strong" second-quarter results, and there is plenty for investors to appreciate, JMP Securities analyst Patrick Walravens said in a note.

The analyst highlighted the following:

A culture of delivering success led by CEO Eric Yuan.

Delivering a platform that is liked by customers.

A sales model that "leverages the inherently viral nature" of video.

The ability to sell to large clients like HSBC, which is used across 3,000 offices.

The opportunity to expand to complementary markets like cloud voice.

Morgan Stanley: 'Laying The Groundwork'

Zoom Media is "laying the groundwork" for future growth, and there were signs of progress in Thursday's earnings report, Morgan Stanley analyst Meta Marshall said in a note.

For example, customers with an annual recurring revenue stream of more than $100,000 are now growing at a faster pace than the rest of the business, the analyst said. 

Also, 39% of revenue growth came from existing customers, while net retention came in at more than 130%, he said.

This suggests existing customers have clear demand for additional products, which will lead to "healthy" attach rates, Marshall said. 

Finally, margins came in at 14.2% due to best-in-class efficiency in Zoom's sales model, and this points to a long-term potential "meaningfully" above 20%, the analyst said.

The bullish case for the stock can't be made until the company shows traction with new product lines like Phone, according to Morgan Stanley. 

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Wells Fargo: Valuation Concerns

Zoom Media reported "robust" earnings, as the company's execution was strong across all geographies and offerings, Wells Fargo analyst Philip Winslow said in a note.

The company also said it is seeing signs of early signs of success with Zoom Phone, including a contract with a luxury brand company, the analyst said. 

Yet the stock is trading a a LTM and NTM enterprise value to recurring revenue multiples of 58.5 times and 38.7 times, respectively, he said, versus the high-growth SaaS sector multiple of 12 times and 9.6 times, respectively.

"Although we are impressed with Zoom's superior products, growth prospects, and scalable business model, we view the stock's near-term risk/reward trade-off as fair balanced." 

BofA: 'Clear Path' To Growth

Exiting Zoom Media's earnings report, there are signs the company has a "clear path" to a $2-billion revenue run rate with strong margin expansion potential, Bank of America Merrill Lynch analyst Kash Rangan said in a note.

The company is well-positioned to leverage its "hyper revenue growth" of 96% year over-year in the recent quarter and take advantage of the $18 billion to $36 billion total addressable market in 2023, the analyst said. 

Ratings, Price Targets

JMP maintained at Market Perform.

Morgan Stanley maintains at Equal-weight, unchanged $75 price target.

Wells Fargo maintained at Market Perform with a price target lifted from $75 to $95.

BofA reiterated with a Buy, price target lifted from $99 to $103.

Price Action

Zoom stock was down 3.6% at $89.36 at the time of publication Friday. 

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Photo courtesy of Zoom.