Zoom Video (ZM) 1st Quarter Earnings: What to Expect

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Zoom Video (ZM) is set to report first quarter fiscal 2020 earnings results after the closing bell Thursday.

One of the most successful tech IPOs in recent memory, Zoom has seen its stock more than double from its IPO price. Zoom aims to disrupt the video conferencing market, which is riddled with technical issues despite a decade-long attempts by larger players to simplify the experience. Some 90% of all virtual meetings within corporations still utilize only audio as business opt to avoid the hassle often associated with integrating video. Zoom’s video-first platform, which is based on the cloud, is disruptive in its ease of use.

Combined with its higher-quality video offering and its 24/7/365 customer support, the company has attracted a loyal customer base. But valuations concerns have emerged as the stock now trades some sixty two times trailing revenue, which soared 118% last year. On Thursday Wall Street will want to see how the company’s loyal customer base can translate to making money. Investors will also want to know whether (or when) the company can expand beyond its video-conferencing business to boost its addressable market.

For the three months that ended April, Wall Street expects the San Jose, Calif.-based company to break earn 1 cent per share on revenue of $111.73 million. This will be the company’s first earnings report as a public issue. For the full year, ending January 2020, the company is projected to breakeven, while full-year revenue is expected to reach $525.89 million. The company has been more than doubling its revenue in each year for the past two years.

Just as impressive, in its most recent fiscal year, Zoom delivered a profit on a GAAP basis, which is pretty remarkable for a young technology company. The Street was especially impressed with the positive earnings outlook for Q2, prompting several analysts to enter the bull camp. JPMorgan, which added the stock to its “Focus List,” initiated coverage on Zoom with an Overweight rating along with a 12-month price target of $113. Zoom “will help fundamentally change the way that business is conducted going forward,” noted the firm.

Piper Jaffray also was impressed. While citing the “triple digit growth and profitability profile” of the company, the analyst started Zoom at Overweight and a $90 target. Bank of America-Merrill Lynch initiated coverage with Buy rating with a price target of $89, noting the tech “just works” and “fundamentally changes the way people collaborate.” Between the three analysts, the average price target is $97, suggesting 25% premium from current levels.

In other words, expectations are high for what Zoom will report not just for this quarter, but also for what the company will accomplish in the next 12 to 18 months. Valuation might be off the charts, but it doesn’t appear to be an obstacle for the company’s growth. And as such, assessing (and perhaps avoiding) a potentially disruptive tech company solely on conventional valuation metrics doesn’t work. That said, Zoom has high bars to jump over. And it must do its part Thursday to maintain the optimism by delivering a beat-and-raise quarter.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: ZM

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