The video conferencing company Zoom Video Communications (ZM) is set to release second-quarter fiscal 2022 earnings after the markets close on August 30.
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Zoom has been rapidly growing and delivering a series of blowout earnings over the past few quarters, fueled by rising demand for its cloud-native video-first platform as a result of the work-from-home and online-learning craze.
However, in the wake of the vaccination program’s success, market sentiment has altered, and there are concerns that Zoom’s growth may slow down as demand for its main video conferencing service drops.
While I am Neutral on the stock due to tough comparisons and declining growth, let’s see what Wall Street analysts anticipate.
Street Fiscal Q2 Expectations
For fiscal Q2, the Street expects Zoom Video to report adjusted earnings per share (EPS) of $1.25 and revenues of $990.96 million.
Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $1.16 per share. (See Zoom Dividend Date and History on TipRanks)
Zoom Video’s Q1 Snapshot
In the first quarter, the company recorded strong profitability, above analyst expectations in both revenue and earnings.
Revenues totaled $956.2 million in Q1, exceeding the Wall Street forecast of $906 million.
The reported earnings per share of $1.32 outperformed analysts’ forecasts of $0.99 per share.
While the company produced outstanding results, there is some cause for concern.
One issue that cannot be overlooked is that Zoom’s growth has slowed in the past quarter. For example, revenues climbed by 369% in Q4 of fiscal 2021 compared to merely 191% in Q1 of fiscal 2022.
Similarly, earnings climbed 713.3% year over year in Q4, compared to 560% in Q1.
What to Watch for in Zoom Video’s Earnings
Zoom is actively making efforts to grow its business with new services, products, and acquisitions.
Zoom’s portfolio has been expanded with products such as Phone service, Zoom Phone Appliances, and OnZoom for online events. In addition, Zoom’s recent agreement to buy Five9 for $14.7 billion is expected to complement the company’s communication platform, allowing it to grow its customer base.
Let’s take a look at some key indicators right now.
In terms of the customer base, Zoom had around 497,000 clients in Q1, rising 87% year-over-year (these data pertain to companies with more than ten employees).
Investors are likely to be watching to see if Zoom’s initiatives could assist the company to expand its client base, thereby helping top-line growth.
Another noteworthy feature is the company’s growing international presence. In Q1 of fiscal 2022, international revenue grew at a faster rate of 288% year over year, compared to 159% in the American region.
These figures demonstrate that Zoom is expanding rapidly in international markets. As countries in Southeast Asia, such as India, move closer to digitalization, Zoom will have plenty of prospects for international expansion.
Analyst Weighs In
Ahead of the Q2 earnings release, Morgan Stanley analyst Meta Marshall upgraded the rating to Buy from Neutral and set a price target of $400.00 (17.4% upside potential).
Another analyst, William Power of Robert W. Baird, reiterated a Buy rating on the stock with a price target of $445 (30.6% upside potential).
However, the analyst community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 11 Buys and 10 Holds.
As for price targets, the average Zoom Video price target of $424.25 implies 24.5% upside potential to current levels.
Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.
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