Zoom's Pace of Innovation Is Good, But Analysts Hold Reservations Due To Competitive Landscape

Needham analyst Ryan Koontz reiterated a Hold rating on Zoom Video Communications, Inc ZM.

The analyst attended the ZM investor day and flagship Zoomtopia customer conference in San Jose, CA. 

While the company provided no changes to its financial outlook, Konntz came away further impressed with its products and pace of innovation. 

Management held firm that the company could win up-market with its focus on customer needs to improve the hybrid workplace employee experience. 

With 600 new features added recently, the analyst sees the costly development of Rooms AI Director and Whiteboard as a potentially effective Trojan horse strategy to displace Microsoft Corp MSFT Teams in the enterprise.

In the near term, management sees Phone and CC as its prime revenue growth drivers while its new free AI Companion features drive upsell conversions and lower churn.

Koontz reiterated his FY24 revenue and adjusted EPS of $4.494 billion vs. consensus of $4.5 billion and $4.66 vs. consensus of $4.67. He sees FY25 revenue of $4.695 billion vs. consensus of 4.467 billion and adjusted EPS of $4.63 vs. consensus of $4.57.

Oppenheimer analyst George Iwanyc had a Perform rating on the stock.

The analyst departed from Zoom's Zoomtopia 2023 conference and management's Q&A with investors comfortable with the company's strategic priorities and pace of product innovation and shared his key takeaways. 

Zoom Phone and Contact Center remain Zoom's key near-term levers to drive enterprise adoption/expansion and reinvigorate growth.

Zoom AI Companion is a new cross-platform unifying feature that could further support growth initiatives and help keep customer churn in check. Product innovation, ease of use, and customer responsiveness remain cornerstones of Zoom's efforts to build a comprehensive, unified communication and collaboration platform for hybrid work.

Zoom's Online go-to-market adjustments and product innovation are helping with renewal efforts despite ongoing macro headwinds and seat pressure. 

Price Action: ZM shares traded lower by 1.56% at $65.03 on the last check Thursday.

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