Zoom Video
ZM
stock went on a strong run to start 2021, as it began to rebound from its late 2020 selloff. But the video conferencing firm and coronavirus standout has been clobbered during the broad-based technology selloff that’s hit all the giants, from Tesla
TSLA
to Apple
AAPL
.
ZM shares closed regular trading Thursday 18% below where they sat on February 16, while the Nasdaq has slipped 7.5% since Feb. 12. The recent downturn could continue, as investors pull profits and speculate about the possible return of inflation. But the broader fundamentals remain strong and the pullback is healthy given the market’s run.
Therefore, investors might want to pay close attention to Zoom’s fourth quarter fiscal 2021 financial results that are due out after the market closes on Monday, March 1 to see if the video conferencing firm might have staying power even as the world slowly returns to
normal
.
Zoom’s Post-Pandemic Pitch
Zoom was growing long before the pandemic. More importantly, it seems like a safe bet that more people will be working remotely in at least some capacity even after the vaccine has been distributed and things open back up. Therefore, Zoom appears to be a pure-play bet on the official arrival of the
work-from-anywhere
world.
The U.S. economy is bouncing back and earnings continue to come in better-than-projected, even as millions of people work from home. The reason is simple: so much work was being done digitally already and the proliferation of business software, SaaS, cloud computing, and more, made for a somewhat straightforward transition.
This could push companies to permanently cut back on everything from commercial real estate to business travel. Many companies have already committed to longer-scale remote work plans and hybrid environments, including giants such as Salesforce
CRM
.
ZM recently cited a report that said over 80% of employees working remotely hope to continue to “work remotely at least 50% or more once they do return to the office.”
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Recent Growth & Outlook
Zoom’s Q4 FY20 sales surged 80% to help lift its full-year revenue by 88%. The lockdowns and remote environment then helped its revenue climb 170% in the first quarter, 355% in Q2, and 367% in Q3.
More specifically, ZM’s customers with more than 10 employees skyrocketed 485% to over 433,000, while its users contributing over $100,000 in trailing 12 months revenue surged 140%. This growth is essential because the company makes money from subscription-based customers, which means it doesn’t really matter if family and friends stop making Zoom calls.
Zacks estimates call for Zoom’s adjusted fourth quarter earnings to jump 420% to $0.78 a share on another 330% stronger sales that would see it pull in $809 million—roughly $185 million more than it did in all of fiscal 2020.
Overall, the video conferencing firm’s fiscal 2021 earnings are projected to climb 726% from $0.35 a share in the year-ago period to $2.89. Zoom’s FY21 revenue is projected to climb 314% from $623 million to $2.58 billion.
It’s practically impossible to recreate the lockdown-environment tailwinds going forward. Nonetheless, Zoom’s revenue is projected to jump another 37% or $1 billion above our FY21 estimate in fiscal 2022 to reach $3.53 billion.
Bottom Line
Other companies have started to prepare for a work-from-anywhere future. For instance, Verizon
VZ
bought video conferencing firm BlueJeans last year. More recently, Salesforce announced in early December its plan to buy work-based communication firm Slack
WORK
for $28 billion, which is the second-largest deal in software history.
Zoom currently holds a Zacks Rank #1 (Strong Buy), as well as an “A” grade for Growth in our Style Scores system. The stock also trades 35% below its October 2020 records and its recent downturn has pushed it to 37 in terms of RSI. This moved it under so-called neutral levels of 50 on the Relative Strength Index. In fact, it is now closer to 30, or what is often considered oversold—a level it last broke briefly at the end of 2020 before its rebound.
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