Zoom Sinks 11% in Pre-Market Trading Despite Posting Stellar Q2 Results

Shares of Zoom Video Communications, Inc. (ZM) were down 11% in pre-market trading despite reporting stellar second-quarter results, with revenue hitting $1 billion for the first time, along with strong profitability and cash flow.

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Total revenue for the quarter climbed 54% year-over-year to $1.02 billion and significantly outpaced the Street’s estimate of $990.96 million. The jump in revenue is attributed to the acquisition of new customers and expansion across existing customers.

At quarter-end, the company had 2,278 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 131% year-over-year. (See Zoom Video Communications stock charts on TipRanks)

To add to that, Zoom posted earnings of $1.36 per share, up 47.8% compared to the year-ago period and much better than analysts’ estimates of $1.02 per share.

Commenting on the results, Eric S. Yuan, founder, and CEO of Zoom said, “We launched Zoom Apps, bringing over 50 apps directly into the Zoom experience, and Zoom Events, an all-in-one digital events service. Today we are a global brand counting over half a million customers with more than 10 employees, which we believe positions us extremely well to support organizations and individuals as they look to reimagine work, communications, and collaboration.”

Based on the continued momentum in the business, Zoom guided for third-quarter total revenue and earnings to fall in the range of $1.015 – $1.02 billion and $1.07 – $1.08 per share, respectively. Consensus estimates for revenue and earnings are $1.01 billion and $1.09 per share, respectively.

Additionally, for the full fiscal year 2022, Zoom forecasts total revenue to be in the range of $4.005 – $4.015 billion compared to consensus forecasts of $4.01 billion. Earnings are expected to be in the range of $4.75 – $4.79 per share versus consensus estimates of $4.67 per share.

In response to Zoom’s quarterly results, William Blair analyst Matt Stotler reiterated a Buy rating on the stock and said, “We believe that Zoom is benefiting from strong secular tailwinds in a large and underpenetrated market and expect that the company can continue to show strong growth for years to come.”

Stotler notes that Zoom’s outstanding performance is proof of Zoom’s strong execution to further drive adoption with both new and existing customers. Also, Stotler believes that Zoom offers differentiated solutions in a large market with huge growth potential.

Having said that, the analyst lists certain risks to his optimistic view, namely, increased competition from new and existing competitors, potential competition from partners, slower-than-expected adoption of new offerings such as Zoom Phone, and execution on expanding into international markets.

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 11 Buys and 10 Holds. The average Zoom Video Communications price target of $422.06 implies 21.5% upside potential to current levels. Shares have gained 6.9% over the past year.