Zoom (ZM) Is Here to Stay Says KeyBanc After Upgrading to 'Overweight', Shares Surge
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KeyBanc analyst Steve Enders upgraded shares of Zoom Video Communications (NASDAQ: ZM) to “Overweight” from “Sector Weight” with a price target of $428.00 per share.
“We see ZM sustaining 30% FCF margin and DD growth with a broader portfolio to sell across its ~500K customers as it evolves into a broader platform opportunity. We see ZM growing at an 18% 10-year CAGR while sustaining 30%+ FCFM. Based on our strong KFL data, partner conversations, and CIO/VAR survey data, we are raising estimates for ZM,” the analyst said in a note sent to clients.
The analyst believes some pandemic-shaped habits will stick as the most recent CIO survey shows strong enterprise adoption of video platforms will continue as companies return to the office.
“We see this as a natural consequence of a future hybrid work state with CIOs expecting ~40% of employees to WFH routinely in the long term. Additionally, our KFL data (link here), which represents Zoom's <10 employee customers (36% of FY21 rev), shows sustained adoption trends through C2Q21 with y/y growth accelerating month to month,” Enders adds.
Moreover, KeyBanc’s IT VAR survey signals positive UCaaS adoption trends with ZM as the most active UC vendor in the quarter.
“We see Zoom Phone as the most immediate growth lever, with our base case building in ~4M seats by FY23 to contribute $503M to FY23 rev (10% of total rev). Longer term, we believe Zoom has a clear opportunity to become a broader cloud communications platform, supporting an ecosystem of solutions (already 1,600+ apps on the Zoom Apps marketplace).”
Enders also weighs in on the recent Five9 acquisition.
“We see Five9 as a unique asset acquired with favorable terms that should transform Zoom's model and support a second leg to growth as the Company prepares to navigate a post-pandemic hybrid world. As the UCaaS and CCaaS markets shift closer together, we see the combination of two best-of-breed cloud solutions as singularly well positioned to take a leadership position,” the KeyBanc analyst concludes.
Shares of Zoom are up almost 7% in today’s trading session.
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