Buy Zoom Video before It Makes Another Big Move

Zoom Video Communications (NASDAQ:ZM) stock lost about 4% in after-hours trading on Tuesday following its results for the first quarter of fiscal 2021. Notably, the quarter ended on April 30. The company posted higher-than-expected results in the first quarter. Zoom Video’s top-line and bottom-line numbers beat analysts’ consensus estimates. However, the shares fell after the company said that it expects larger-than-expected cloud computing expenses to meet the surge in demand.

Zoom Video stock will likely rise even higher after almost a 206% rally year-to-date amid the coronavirus pandemic. According to a CNBC report, “They have a market share right now unlike any other. It’s a massive opportunity for the company.” The report added, “If they don’t get it done now, look out on the other side of it but this will drive revenue, it’ll drive growth, it’ll drive profitability and assuming they get the security side of it right, the opportunity is endless for them at this point, especially for the foreseeable future.”

Zoom Video’s Q1 earnings results

In the first quarter, Zoom Video reported an adjusted EPS of $0.20 compared to $0.03 in the first quarter of fiscal 2020. The earnings beat analysts’ consensus estimate of $0.09 per share. Zoom Video generated adjusted revenue of $328.2 million—a growth of 169% from the first quarter of fiscal 2020. The company beat analysts’ consensus revenue estimate of $202.7 million.

In the first-quarter earnings release, Zoom Video CEO Eric S. Yuan said, “The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.”

Zoom Video also provided a strong financial outlook amid the coronavirus pandemic. In the second quarter of fiscal 2021, the company expects total revenue of $495 million–$500 million. Zoom Video also expects its non-GAAP EPS to be $0.44–$0.46 for the second quarter.

For fiscal 2021, Zoom Video expects total revenue of $1.775 billion–$1.800 billion. The company expects its non-GAAP EPS to be $1.21–$1.29 for fiscal 2021.

Wall Street analysts expected Zoom Video to report an adjusted EPS of $0.11 on revenue of $222.8 million in the second quarter. Analysts expect the company’s revenues to rise by 94.0% YoY in fiscal 2021 to $1.21 billion. The sales could rise by 29.8% YoY in fiscal 2022 to $1.57 billion. Meanwhile, the adjusted earnings will likely rise by 94.3% YoY in fiscal 2021 to $0.68 per share. However, the profits could rise by 38.2% YoY to $0.94 per share in fiscal 2022.

Analysts’ recommendations

Among the 28 analysts following Zoom Video stock, ten recommend a “buy,” 14 recommend a “hold,” and four recommend a “sell.” Wall Street analysts’ mean target price on the stock is $160.83, which implies a 22.7% loss from the current level of $208.08. The consensus target price for the stock has risen from $123.13 in May—a growth of 30.6%.

Many analysts revised their target price for Zoom Video stock after its first-quarter earnings report.

  • Piper Sandler increased its target price from $144 to $211.
  • D.A. Davidson upgraded the stock from “neutral” to “buy” and increased its target price from $150 to $240.
  • J.P. Morgan increased its target price from $150 to $220.
  • RBC upgraded the stock from “sector perform” to “outperform” and increased its target price from $125 to $250.
  • Needham increased its target price from $140 to $230.
  • Citigroup increased its target price from $186 to $217.
  • Stifel increased its target price from $105 to $180.
  • Rosenblatt Securities increased its target price from $150 to $210.
  • Cantor Fitzgerald increased its target price from $150 to $261.
  • Bank of America increased its target price from $165 to $240.

Stock returns

Zoom Video stock rose 1.9% on Tuesday and ended the day at $208.08. At this closing price, the company’s market cap is $58.7 billion. Notably, the stock is trading 2.2% below its 52-week high of $212.69 and 241.3% above its 52-week low of $60.97.

Based on the closing price on Tuesday, Zoom Video stock was trading 23.0% above its 20-day moving average of $169.16. The stock is also trading 35.9% above its 50-day moving average of $153.14 and 67.8% above its 100-day moving average of $124.02. Zoom Video’s 14-day relative strength index number is 72, which implies that it’s overbought.

On Tuesday, the Dow Jones and the S&P 500 rose 1.05% and 0.82%, respectively.

Read Can Zoom Video Sustain COVID-19 Growth after Its Q1 Earnings? to learn more.