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Zoom Video (ZM) Up 1.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Zoom Video Communications (ZM - Free Report) . Shares have added about 1.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zoom Video due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Zoom Video Q2 Earnings Top Estimates, Revenues Jump Y/Y

Zoom Video’s second-quarter fiscal 2021 adjusted earnings of 92 cents per share beat the Zacks Consensus Estimate by 104.4%. The company reported earnings of 8 cents per share in the year-ago quarter.

Moreover, revenues of $663.5 million surpassed the consensus mark by 33.2% and also soared 355% year over year. This outperformance was primarily driven by new customer subscriptions, which accounted for approximately 81% growth. Existing customer subscriptions represented roughly 19% of year-over-year growth.

Revenues from Americas (68.5% of revenues) jumped 287.9% year over year to $454.2 million. EMEA (19.3% of revenues) soared a whopping 671.1% from the year-ago quarter to $128 million. APAC (12.3% of revenues) were $81.4 million, up a massive 572.7% year over year.

User Base Jumps in Q2

As anticipated, Zoom Video benefited from the coronavirus-induced work-from-home and online-learning wave.

At the end of the fiscal second quarter, Zoom Video had roughly 370,200 customers (with more than 10 employees), up 458% year over year. Markedly, Zoom Video’s trailing 12-month net dollar-expansion rate in customers with more than 10 employees was above 130% for the 9th consecutive quarter.

Moreover, the company had 988 customers (with more than $100,000 in trailing 12-month revenues), up 112% year over year. ExxonMobil and Activision Blizzard were notable enterprise customer additions in the reported quarter.

While ExxonMobil chose Zoom Video as its unified communications platform, Activision Blizzard committed to a full-enterprise rollout of Zoom Meeting and Zoom Rooms to replace its mix of legacy video-conferencing products.

Zoom Video also expanded its presence in ServiceNow. During the quarter, the companies announced a commitment to use each other’s technology solutions to make the work-from-anywhere experience better.

Operating Details

Non-GAAP gross margin in the quarter under review was 72.3%, significantly down from 82.2% reported in the year-ago quarter.

Research & development (R&D) expenses as a percentage of revenues decreased 430 basis points (bps) on a year-over-year basis to 4.3%. Further, general & administrative (G&A) expenses decreased 440 bps to 7.7%.

Moreover, sales & marketing (S&M) expenses as a percentage of revenues were 18.5%, significantly down from 47.2% reported in the year-ago quarter.

Non-GAAP operating income surged to $277 million from $20.7 million reported in the year-ago quarter. Operating margin expanded to 41.7% from 14.2% reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jul 31, 2020, cash and cash equivalents and marketable securities were $1.48 billion compared with $1.11 billion as of Apr 30, 2020.

Free cash flow was $373.4 million in the quarter under review compared with $251.7 million in the previous quarter and $17.1 million in the year-ago quarter.

Remaining Performance Obligation (RPO) was $1.42 billion, up 209.2% year over year. The company expects to recognize nearly 72% or $1 billion of the total RPO as revenues over the next 12 months.

Other Developments

During the reported quarter, the company launched Zoom Hardware as a Service (HaaS). Notably, Zoom HaaS offers customers a variety of subscription options for phone and meeting-room hardware from leading hardware manufacturers.

Moreover, the company’s Zoom Phone was authorized under the FedRAMP program. This now enables federal agencies to use Zoom’s unified modern cloud solutions.

In August, Zoom Video expanded the availability of Zoom Phone service to 25 additional countries and territories. Zoom Video now provides local telephone service and domestic calling in more than 40 countries and territories.

Moreover, the company launched Zoom for Home, its new innovative category of software-experience and hardware-device partnerships to support remote-work use cases. The company launched this program with its partner DTEN in July.

In August, Zoom Video announced the expansion of Zoom for Home to smart displays including Amazon Echo Show, Portal from Facebook, and Google Nest Hub Max. While Zoom on Portal is expected to be available publicly in September, Zoom on Echo Show and Zoom on Assistant-enabled Smart Displays, including Google Nest Hub Max, are expected to be available by the end of 2020.

Guidance

For third-quarter fiscal 2021, Zoom Video expects revenues between $685 million and $690 million. Non-GAAP income from operations is expected between $225 million and $230 million. Moreover, non-GAAP earnings are expected in the73-74 cents-per-share range.

For the full fiscal, Zoom Video now expects revenues between $2.37 billion and $2.39 billion (up from the previous revenue guidance of $1.775-$1.8 billion). The company expects fiscal gross margin to be similar to second-quarter reported figure.

Moreover, management expects churn rate to increase particularly within customers with 10 or fewer employees, which currently comprises 36% of revenues.

Further, Zoom Video expects operating margins to decrease from the second-quarter level over the balance of this year due to increased hiring and spending.

Non-GAAP income from operations is expected between $730 million and $750 million (up from the past outlook of $355-$380 million). Moreover, non-GAAP earnings are expected in the $2.40-$2.47 per-share range (up from previous outlook of $1.21-$1.29 per share).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 128.96% due to these changes.

VGM Scores

At this time, Zoom Video has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zoom Video has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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