Back to top

Bull of the Day: Zoom Video Communications (ZM)

Read MoreHide Full Article

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) , (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.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>