Zoom Video Communications (NASDAQ 🙂 has had an incredible run this year. The stock is benefiting from strong demand for the company's digital communication tools during the COVID-19 pandemic.
Stocks soared to new highs this week, adding to this year's fivefold gains as millions of workers and students flocked to the video conferencing service in a global work-from-home environment. The release of the company released Tuesday showed that the San Jose, California-based company is becoming a clear winner, and demand for its services is translating into healthy profits.
Zoom reported the second-largest sales increase among companies in the past quarter, clearly standing out from those whose stock valuations are not supported by strong sales.
Sales increased to $ 663.5 million in the last quarter. That is four times more than in the same period a year earlier. Analysts predicted an average of $ 500 million for the period. Revenues, excluding some items, were $ 0.92 cents a share for the period ended July 31, compared to analyst estimates of $ 0.45.
Shares were up 47% after the report, taking Zoom's market cap to $ 121.35 billion – an increase of $ 37 billion, making it one of the hottest stocks this year. Zoom, which went public in April 2019, was worth approximately $ 16 billion after the first day of trading.
Zoom Communications 1-Year Review.
After yesterday's rally, Zoom is now worth more than 140-year-old IBM (NYSE 🙂 and high-flying chipmaker AMD (NASDAQ :). For investors just thinking about adding Zoom to their portfolio, the biggest question is whether now is the right time to start this trade.
Explosive Growth to Continue
To justify Zoom's current valuation and future upside potential, investors must be convinced that the demand for video conferencing will continue even after the pandemic is contained.
Zoom provided a prediction that suggests the explosive growth will continue. In the fiscal year ending January, sales will reach a whopping $ 2.39 billion, while sales nearly quadrupled in just one year. Zoom previously predicted fiscal year revenue of $ 1.8 billion.
Zoom & # 39; s Chief Financial Officer Kelly Steckelberg told Bloomberg that communicating via video is not a fad and that the company is hiring as soon as possible to meet growing demand. Analysts, on the other hand, are trying to quickly catch up to this remarkable momentum the company has been showing since the start of the COVID-19 pandemic.
Following this week's massive earnings report, many analysts have raised their price targets on Zoom, including JPMorgan, RBC Capital and Goldman Sachs.
JPMorgan set a target of $ 425 per share for Zoom in December 2021. The previous target was $ 220 per share for December of this year. BTIG changed its rating to buy from neutral and issued a price target of $ 500 per share. The company believes there is more growth in store for the company.
“Going forward, we fully expect even more businesses, colleges, elementary schools and organizations of all kinds to embrace hybrid, flexible environments, driving demand for Zoom as the clear leader in the video-first, UCaaS market . Said the note.
Goldman Sachs, which previously had a sell rating on the stock, upgraded Zoom to neutral. The company also increased its target price from $ 187 to $ 420 per share, saying
"While our view of the company's management team, product quality and positioning has never been, and continues to be, positive, our position on the limits of its valuation is incorrect."
As sales soar and Zoom enrolls major customers, such as Exxon, to provide them with the latest digital communications tools, the company could become a potential acquisition target for techies like Microsoft, Google & # 39; s parent company Alphabet and Facebook.
Earlier this month, the company announced that both Facebook and Google will add Zoom support to their respective hardware devices.
"These tech giants have their own video conferencing offerings, but still felt compelled to add Zoom capabilities to their products, a sign of the firm's strong market position," said a Bloomberg analysis of the outlook. Company.
Bottom Line
Zoom stocks may lose some of their momentum after such a powerful post-earnings rally, but it is in a great growth mode, which is unlikely to slow down given the increasing need for people to work and study remotely . The quality of the company's management and superior meeting tools suggest this stock has more upside potential.
