Zoom Video Shares Pull Back After Q1 Earnings: What Do Analysts Think?

Zoom Video Communications Inc ZM shares traded lower by 0.3% on Wednesday after the company reported blowout first-quarter earnings numbers but warned investors that a slowdown is coming in the quarters ahead.

Zoom Video reported first-quarter adjusted EPS of $1.32 on $956.2 million in revenue. Both numbers topped consensus analyst estimates of 99 cents and $906 million, respectively. Revenue was up 191% from a year ago.

Zoom reported gross margins of 73.9%, up from 69.4% last quarter.

Looking ahead, Zoom guided for second-quarter adjusted EPS of between $1.14 and $1.15 and revenue of between $985 million and $990 million. For the full fiscal 2022, Zoom is projecting adjusted EPS of between $4.56 and $4.61 and revenue of between $3.98 billion and $3.99 billion.

The full-year guidance exceeded Wall Street expectations of $3.76 in EPS and $3.8 billion in revenue, but it represents a sizable slowdown in revenue growth as the company laps the 2020 pandemic.

Related Link: 5 Salesforce Analysts Break Down Q1 Beat: 'Executing On Improving Growth And Margins'

Upselling Opportunities: Bank of America analyst Daniel Bartus said Zoom’s growing base of 497,000 customers provides opportunities for significant upselling.

“Solid upsell trends are evident with the TTM dollar based net expansion rate firmly above 130% and Zoom adding 355 customers spending over $100k, which matches the record set in 4Q21,” Bartus wrote in a note.

RBC Capital Markets analyst Matthew Hedberg said margins were significantly higher than he expected, driven by improvements in public cloud economics.

“Zoom reported a good start to its year, with better than expected churn, continued uptake of Phone, and higher implied 2H growth than consensus (in guidance that's likely still relatively conservative),” Hedberg wrote.

KeyBanc analyst Steve Enders said net retention acceleration and strong Zoom Phone adoption were highlights of the report.

“The focus for investors remains Zoom's ability to backfill a revenue base transitioning to hybrid work environments with Zoom Phone (50% user growth over last 5 months) a key enterprise expansion opportunity and what this means for steady-state growth,” Enders wrote.

Valuation Stretched: JMP analyst Patrick Walravens said Zoom’s numbers and guidance were strong, but the stock likely has limited upside at current levels.

“All things considered, we see the shares of this remarkable business as fairly valued and think investors may see a better entry point in the future to own this high-quality name,” Walravens wrote.

Oppenheimer analyst Ittai Kidron said he is incrementally more positive on Zoom’s growth prospects in a post-pandemic world.

“Looking ahead, our attention turns to the pace of G2K penetration, new product adoption, and churn for customers with fewer than ten employees,” Kidron wrote.

Morgan Stanley analyst Meta Marshall said Zoom is giving investors reasons to believe its growth trajectory will continue past the first half of 2021.

“We believe investor sentiment currently leans too negatively on Zoom's long term growth potential, with ability to disprove bear case narratives reliant on moving past churn risk with small customers in the 2H,” Marshall wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and $480 target.
• JPM Securities has a Market Perform rating.
• RBC has an Outperform rating and $480 target.
• Oppenheimer has a Perform rating.
• KeyBanc has a Sector Weight rating.
• Morgan Stanley has an Equal-Weight rating and $360 target.