Should Investors Load on Zoom Shares Before Profit? Analyst weighs in

The June quarterly earnings season is almost over, but there are still some highly anticipated quarterly reports to look forward to. After today’s close, Zoom (ZM) will report its F2Q22 results. The video conferencing platform is facing some daunting compositions this time around. Recall that Zoom was one of the biggest beneficiaries of the global lockdowns at this point a year ago, as it transformed itself from a niche product to one used by all segments of the population, and this will be the first quarter that is measured by a full quarter of the pandemic-related tailwind.

Ahead of the press, it is this particular issue that is on Deutsche Bank’s card Matthew Niknam‘s spirit.

“We continue to see significant upsell opportunities for Zoom upmarket and see the efforts aimed at strengthening the platform through complementary products (ie: telephone, CCaaS via Five9 acquisition, etc.) as very positive,” the analyst noted. “That said, we maintain a more cautious tone around increased churn risk in the company’s SMBs (small and medium-sized businesses).”

These small businesses are customers with fewer than 10 employees, who now account for 37% of Zoom’s revenue, compared to a pre-pandemic level of about 20%.

Such concerns are exacerbated by the reopening of economies around the world. In addition, recent Q2 earnings from other video-focused peers noted a “moderation in demand” compared to a year ago.

Zoom is obviously aware of this situation and is taking steps to prepare for life in the post-COVID era. For example, the acquisition of Five9 — with 12-month revenue comprising 83% from the enterprise segment — helps “strengthen the platform as it seeks greater penetration within Enterprises, while also expanding the TAM (total addressable market).” by $24 billion (to $86 billion in total).”

But for now, given the “prospects to moderate growth in the future,” Niknam remains on the sidelines with a Hold rating. The analyst gives ZM a price target of $375, suggesting a ~9% gain from current levels. (To view Niknam’s track record, click here)

On Wall Street, opinions are almost evenly divided on Zoom’s outlook, with the bulls leading the way. Based on 11 purchases vs. 10 held shares, the stock has an average buy consensus valuation. The outcome is more convincing about where the stock price is headed; at $424.25, the average price target implies that stocks will change hands over a year at a premium of ~24%. (See Zoom stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.