Zoom (ZM) Soars 8% After Smashing Q4 and Guidance Estimates, Prompting an Upgrade

Zoom Video Communications (NASDAQ: ZM) reported an extremely strong earnings report for its fourth quarter to send shares 8% higher in pre-open Tuesday.

Zoom reported revenue of $882.5 million, representing a mouth-watering jump from $188.25 million reported a year ago. Surveyed analysts were expecting revenues of $811.04 million. The company made an adjusted profit of $1.22 per share to crush the $0.79 per share expected.

“The fourth quarter marked a strong finish to an unprecedented year for Zoom. In FY2021, we significantly scaled our business to provide critical communications and collaboration services to our customers and the global community in response to the pandemic,” Eric Yuan, CEO of the company, said in a statement.

“As we enter FY2022, we believe we are well positioned for strong growth with our innovative video communications platform, on which our customers can build, run, and grow their businesses; our globally recognized brand; and a team ever focused on delivering happiness to our customers.”

The company delivered a big beat on the guidance front as well. It expects to see revenues of $900 million to $905 million in the first quarter vs $829.5 expected from analysts. Zoom is projecting to earn between $0.95 and $0.97 per share to blow past the $0.72 per share consensus.

The company now has 467,100 customers with 10 or more employees. In this category, surveyed analysts were expecting Zoom to present 442,600 clients with 10+ employees.

Following a beat across the board, Piper Sandler analyst James Fish upgraded ZM to “Overweight” from “Neutral” and raised the price target to $541.00 per share from the old $501.00. “Better late, than never,” writes Fish in today’s note.

“Previously, valuation and the high exposure to commercial monthly-paying customers kept us on the sidelines. While the quarter itself did not answer the latter concern, the lead metrics suggest greater exposure to enterprise and annual/ multi-year customers ahead with a more digestible valuation given visibility. Our rationale for "why now" is outlined below, which includes Phone penetration, consolidation and new market entries, and underlying inputs & dynamics. The "party is not over in comm software" in 2021, and Zoom should be a beneficiary.”

Wells Fargo analyst Philip Winslow also raised the price objective to $475.00 per share from the old $450.00. However, Winslow left the “Equal Weight” rating unchanged as the “stock’s near-term risk/reward trade-off” is described as fairly balanced.

“Zoom reported another quarter of very strong results, highlighted by revenue growth of 369% year-over-year and total RPO growth of 190% year-over-year driven by broad-based strength across industry verticals, geographies, and customer cohorts. However we would note customers with 10 or fewer employees decreased slightly to 37% of total revenue from 38% in FQ3, this is considerably higher than the 20% in Q4 FY2020.

“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 fairly balanced, given the limited visibility into the medium-to long-term opportunity of the significant number of “mass market” customers Zoom added this year,” Winslow wrote in a memo sent to clients.

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