Zoom: Withdrawal after profit is an opportunity, says top analyst

After a string of pandemic-driven earnings, it would always be a tough job for Zoom (ZM) to maintain momentum in a post-lockdown era. While the company’s quarterly results in June were again excellent, beating estimates for both the top and bottom lines, the outlook failed to impress investors, who sent shares down ~17% in the ensuing session.

Zoom expects to generate revenue of between $1.015 billion and $1.02 billion for the third quarter, roughly in line with Street’s estimated revenue of $1.01 billion. The company advocates adjusted earnings per share in the $1.07 to $1.08 range, below the consensus estimate of $1.09 per share.

The prediction may have been a disappointment to some, but RBC’s Rishi Jaluria believes ZM shares are still a long-term winner.

“Management guidelines, which seem conservative to us, are based on SME/consumer headwinds after the pandemic,” said the 5-star analyst. “It may take a few quarters for the headwinds to subside and Zoom to return to its true underlying growth rate.”

Zoom’s high exposure to SMBs has been questioned, but Jaluria believes there’s plenty to suggest Zoom could become a broader platform in the long run. The upcoming acquisition of Five9 should help accelerate this process, and the analyst notes that the commentary around Zoom Phone and major customers has been particularly encouraging.

Zoom Phone “continues to gain impressive traction.” Over the past 8 months, 1 million “paid seats” have been added, with a total customer base now exceeding 2 million. Impressively, Jaluria notes, customers who spent more than $100,000 in ARR on Zoom Phone were up 241% year-over-year.

And while customer gains were back at pre-pandemic levels, “big customer momentum” continued, with a 131% increase from over $100,000 customers and a 77% increase from over $1 million customers. . Management liked to highlight the particular strength in the enterprise customer segment (direct and partner channel customers), which grew twice as fast as online customers.

While investors were unimpressed, Jaluria, in time-honored Wall Street fashion, recommends investors “use the slump as a buying opportunity.” In fact, Jaluria considers Zoom a “top pick” and maintains an Outperform (ie Buy) rating backed by a price target of $450. Stocks could appreciate ~55% should the analyst’s statement come true in the coming months. (To view Jaluria’s track record, click here)

Not everyone on the street is equally exuberant. The consensus rating for moderate buying of ZM stock is based on almost even 11 buys and 10 held. However, the average price target remains reasonable; at $424.25, the figure is set to generate ~35% returns over the next 12 months. (See Zoom stock analysis on TipRanks)

For great ideas for stock trading at attractive valuations, visit TipRanks’ Best stocks to buy, a newly launched tool that unites all of TipRanks’ stock insights.

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.