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Author: Alan LittleDate: 2020-12-02

Zoom (ZM) down 14% as analysts raise valuation concerns

Zoom Video Communications (ZM) smashed the Wall Street consensus for fiscal Q3 earnings on Tuesday, but concerns about the video conferencing company’s valuation saw shares plunge 14% during trading.

Before markets opened, Zoom Video Communications posted $0.99 earnings and $777.2m revenue, which comfortably surpassed the $0.76 and $693.95m expectations.

The San Jose-based company had another strong three-month period through to 31st October as revenue climbed 169%, though that was lower than the Q1 to Q2 jump of 355%.

However, there are signs that Zoom’s incredible recent growth could be moderating somewhat.

Gross margin fell from 67.7% to 67.3% quarter over quarter, but the number of customers with 10 employees or more did rise to 433,700.

Zoom has been one of the big winners on the stock market this year, soaring 603% for the year to date by Monday’s close on the explosion of its service usage amid stay-at-home measures related to the pandemic.

Following the latest report, analysts said that they were impressed with the company’s performance.

However, Morningstar analyst Dan Romanoff admitted: “We continue to struggle with Zoom’s valuation and view shares as overvalued.”

Romanoff did add $23 to a new $173 fair value estimate on Tuesday though.

Morgan Stanley believes that there is still room for growth but is also cautious about Zoom’s valuation after continuing with an equal weight rating and $380 price target.

Oppenheimer analysts noted that the outlook is strong but that it is difficult to see where Zoom will end up in a “post-pandemic environment”.

Investors were heading to the sidelines on Tuesday as Zoom shares cratered out of the gate and were 13.97% down at $414.73 by mid-morning on the Nasdaq.

ZM Stock Chart




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