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Bull of the Day: Zoom Video Communications (ZM)

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Zoom Video Communications (ZM - Free Report) is a cloud-based video-conferencing platform; it lets users connect on a desktop or other devices like a smartphone or tablet through an app. Its main customers are enterprises, though it does provide a free and cheaper tier plans that appeal to individuals and smaller groups.

Once customers sign up for plan, they have access to a slew of conference and communications tools that help organize meetings. Zoom’s products also integrate with many standard workplace software, including services and products made by Google (GOOGL - Free Report) , Microsoft (MSFT - Free Report) , Dropbox (DBX - Free Report) , salesforce.com (CRM - Free Report) , and Slack (WORK - Free Report) .

Shares Soar After First Earnings Report

Back in June, Zoom reported impressive numbers in its first earnings report since its IPO.

Revenues of $122 million beat our consensus estimate and soared 103% year-over-year. Plus, revenue from customers who spend over $100K annually jumped 120%; this means that Zoom is successfully getting its customers into some of its higher-value platforms and services.

Zoom also posted a profit in Q1. EPS came in at $0.03, beating our consensus estimate of breakeven. In the year ago quarter, the company reported a $1.7 million loss.

Cash flow was strong too. Net cash hit $22.2 million for the quarter, up from $2.8 million a year ago, while free cash flow turned positive to $15.3 million.

The cloud-based video communications company provided full-year revenue guidance, and expects its top line to be in the range of $535 million to $540 million. The analyst consensus was $526 million.

ZM is On the Move

Since its IPO, shares of Zoom Video have been white hot, jumping more than 67% compared to the S&P 500’s return of roughly 3.4%. ZM priced its IPO at $36 per share, and for those investors who were able to get in right away, their shares have soared as high as 170%.

Earnings estimates have since been rising, and the stock is now a Zacks Rank #1 (Strong Buy).

For the current fiscal year, eight analysts have revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has risen five cents from $-0.03 to $0.02. 2021 looks pretty strong too, with earnings expected to still remain in positive growth territory.

Since Zoom just began reporting a net profit, it’s hard to try and value the company, especially using traditional metrics like P/E.

Looking at its P/S ratio, shares are currently trading at 42X its F12 sales, well above the broader computer software-services market. This isn’t surprising though. With young companies like Zoom, you’re paying for the growth right now. And the company’s top line is growing; revenues are expected to see double-digit expansion over the next two fiscal years.

Thanks to this bullish near-term outlook and soaring sales, the future is looking promising for Zoom Video. If you’re an investor searching for a broader SaaS sector stock to add to your portfolio, make sure to keep ZM on your shortlist.

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