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Earnings Outlook: Zoom Video Earnings: Expectations Might Return to Earth

With Zoom Video Communications Inc. facing its first earnings report, which compares results to a full-blown pandemic quarter, investors are looking more to the future.

Since hitting its high of $ 568.34 on October 19, 2020, stocks have fallen more than 40% as investors worry the results look less impressive compared to those pandemic spikes. Sentiment appeared to be changing a bit this week, however, with stocks gaining 1.2% for the week after falling 5.2% and 7.4% in the previous two weeks, respectively.

Morgan Stanley analyst Meta Marshall upgraded Zoom from equilibrium to overweight on Thursday and raised her target price from $ 360 to $ 400 in anticipation of a 5% or greater increase in revenue from the company "a positive response for." the stock would trigger ”. Marshall also sees Zoom's plan to buy Five9 Inc.
FIVN,
+ 0.32%
for $ 14.7 billion as positive.

Prior to the upgrade, Marshall said the checks were "positively skewed" following Zoom's latest earnings report, and with plans to expand with Five9 and accelerate Zoom Phone adoption, customer churn is becoming less of a concern, especially with a flare in COVID-19 cases because of the delta variant.

"While the valuation continues to attribute sustained growth of ~ 22x EV / FY23e sales, we hear less concerns about churn in FY22, especially as return to work initiatives have slowed," said Marshall.

At the last review, the Enterprise Value to Sales ratio of Zoom, or EV sales, was 29.5, far from the ratio of 49 when the company first went public. Back then, this 49 awarded Zoom the award for the highest EV sales by a US technology company, valued at more than $ 500 million. This award now goes to companies like CrowdStrike Holdings Inc.
CRWD,
+ 1.27%
and Zscaler Inc.
ZS,
+ 2.53%,
both of which have an EV-to-sales ratio of over 60 according to FactSet data.

Look what

Merits: Of the 21 analysts surveyed by FactSet, Zoom will average adjusted earnings of $ 1.16 per share. That's 96 cents per share that was expected at the start of the quarter and 92 cents per share that was reported last year. Zoom predicts earnings of $ 1.14 to $ 1.15 per share. Estimize, a software platform crowdsourced by hedge fund executives, brokers, buy-side analysts, and others, claims earnings of $ 1.27 per share.

Revenue: Of the 20 analysts surveyed, Zoom is expected to report sales of $ 991.2 million. That's an increase from $ 934.9 million estimated at the beginning of the quarter and $ 663.5 million reported last year. Zoom forecast second quarter revenue of $ 985 million to $ 990 million. Estimates assume sales of $ 1.01 billion.

Stock movement: Since Zoom began posting results more than two years ago, the company has outperformed Wall Street sales estimates by 5% or more and earnings per share estimates by 30% or more. The day after the earnings report, stocks closed half the time and fell after the last three quarterly reports.

Over the past 12 months, Zoom stocks are up 16% while the S&P 500 index
SPX,
+ 0.88%
is up 20% and the tech-heavy Nasdaq Composite Index
COMP,
+ 1.23%
has increased by 17%.

What analysts are saying

JP Morgan analyst Sterling Auty, who has a neutral rating, said Zoom's daily active users and downloads have declined since its peak in September but was "too difficult to determine how many users have reduced their activity enough to either." to switch to a free version ". offer or cancel some places within an account. "

"We believe that business users who pay for a license are likely to keep it if they use videoconferencing a few times a week or more," said Auty. "The only area that is likely to be more volatile in terms of churn is in accounts with fewer than 10 employees, which also include consumer use cases."

JMP analyst Patrick Walravens, who has a hold rating on the stock, said Zoom's smaller customers are likely the biggest source of churn and that Microsoft Corp.'s biggest threat is that of its business
MSFT,
+ 0.21%
Team product.

"Before the pandemic, revenue from customers with one to ten employees accounted for around 20% of total business," Walravens said. “In the F1Q22, this customer segment accounted for 37% of total sales. While we do not expect any increased churn in the customer segment with more than 10 employees, it is likely that segments 1 to 10 will experience a churn. "

Piper Sandler analyst James Fish, who is overweight on Zoom and has a target price of $ 464, said he expects revenue of more than $ 1 billion for another quarter of growth of 50% or more.

"Investors are likely to focus on the success of Zoom Phone, with +0.5 million net additions expected or> 2 million Zoom Phone licenses in the market," said Fish. "Most investors forget, however, that this appendix may result in higher seats in meetings."

KeyBanc Capital Markets analyst Steve Enders, who has a buy rating and a target price of $ 428, said Zoom's overshoot "began to normalize from oversized levels in FY21," so it's more a question of how big the beat is.

Enders expects investors to focus more on how Zoom intends to grow beyond its core video conferencing and how management comments on the launch of Zoom Phone, Zoom Apps, Zoom Events and the upcoming acquisition of Five9.

Of the 28 analysts covering Zoom Video, 15 have a buy or overweight rating, 11 have a hold rating, and two have a sell or underweight rating, with an average target price of $ 415.40, according to FactSet data.

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