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Stocks  | December 7, 2020

There’s just no pleasing the market sometimes. On Monday, Zoom (ZM) dialed in another strong quarterly statement, only to see its share price drop by 15% in the following session.

It has been a breakout year for the video conferencing platform, but investors were evidently nonplussed by the size of the latest beat and raise, as it didn’t quite match the prior two quarters’ estimate-crushing results.

While Needham analyst Richard Valera points out other possible reasons for the sell off, none are of much concern to him when considering Zoom’s long-term prospects.

“Acknowledging ZM shares will likely continue to be subject to volatility on potential rotation away from WFH names and/or concerns regarding tough comps looming in F2Q22 and beyond, we think an enduring shift towards remote work and ZM's rapidly growing installed base into which it can cross-sell Phone, Rooms and future products, afford it the opportunity to double revenue again in the next 3-4 years,” the 5-star analyst commented.

In F3Q21, Zoom’s revenue clocked in at $777.19 million, amounting to a 366.5% year-over-year increase and coming in ahead of consensus estimates by $83.06 million. Non-GAAP EPS of $0.99 was way above the Street’s $0.76 call.

New customer adds once again tilted toward the “historically higher-churn” sub 10 member group, which accounted for 38% of additions in 3Q, up from 36% in the second quarter and 30% in 1Q. On the other hand, customers contributing over $100,000 of TTM (trailing twelve months) revenue provided a 136% year-over-year uptick, amounting to the “fastest growth in this cohort in the last 8 quarters, showing impressive traction with these larger customers.”

Looking ahead, Zoom’s F4Q21 guidance is for revenue of between $806 to 811 million and EPS between $0.77-0.79, beating the consensus calls for $728 million and $0.62, respectively.

Overall, there’s no change to Valera’s rating which stays a Buy, while the $540 price target stays put, too. The implication for investors? Upside of 31%.

Looking at the consensus breakdown, Zoom’s ratings are mostly split between the believers and the fence sitters. Barring 1 Sell, ZM's Moderate Buy consensus rating rests on 12 Buys and 11 Holds. The average price target stands at $485.16, suggesting upside of 18% over the next 12 months.

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