Shares of Zoom Video Communications Inc. rose Thursday as the company’s peers and the broader market stumbled after Morgan Stanley analyst Meta Marshall turned bullish on earnings and said investors had just gotten “too negative.”
Marshall raised her rating on Zoom to overweight after being at the same weight since she began hedging the stock in May 2019, a month after it went public. She raised her price target from $360 to $400.
The upgrade and price target increase come just days before Zoom will report fiscal second quarter results.
The stock ZM,
climbed a whopping 6.0% early in the session, before pushing gains to 0.9% at $340.63. Meanwhile, SPDR S&P Software & Services exchange-traded fund XSW,
lost 0.8% and the S&P 500 index SPX,
Shares of Zoom have lost 40% since closing at a record $568.34 on October 19, 2020, but are up 18% since closing at a 2021 low of $288.49 on May 10.
Marshall said investor concerns about the turnover of small-to-medium businesses overshadow the continued growth potential of the business, especially as the platform expands.
“Ahead of the catalysts in the second half of the year, we feel that valuation has turned too negative due to short-term churn concerns,” Marshall wrote in a note to customers. “[W]I think the company’s momentum, coupled with the disappearance of margin headwinds, creates a positive attitude in FQ2.”
Read also: Zoom Video shares skyrocket after KeyBanc analyst says it’s time to buy as hybrid employment status remains here.
Zoom has said it will report results for the quarter ending August 30 after the closing bell.
The average estimate from analysts polled by FactSet is for earnings per share of $1.16, up 92 cents over the same period a year ago, while the revenue consensus is 49% growth to $991.2 million. .
Marshall acknowledged that the increased churn of corporate clients with fewer than 10 employees is a short-term concern, but not enough to keep her on the sidelines.
“[T]here has been nervous around recent data indicating increased churn on the
And the sooner the company starts reducing the percentage of revenue that comes from
The FactSet consensus for Q2 revenue from customers with fewer than 10 employees is $341.0 million, or 34.4% of the consensus for total revenue.
Turning to the longer-term outlook, Marshall said she believes overall growth will “probably surprise positively,” with multiple factors, including the company’s international operations, its larger customer business and the zoom phone.
In addition, the recent announcement of the $14.7 billion deal to buy contact center software company Five9 Inc. FIVN to buy,
will help Zoom build a multi-category communications platform that “can help maintain investor enthusiasm and appreciation.”
Shares of Zoom, which are up 395.8% in 2020 as a beneficiary of the work-from-home trend caused by the COVID-19 pandemic, are up 1.0% so far, while the Software and Services ETF 13, 0% has gained and the S&P 500 is up 19.0%.