At their peak, around October of last year, they were up a staggering 800% on the year. That was also right around when COVID vaccines were starting to be approved and the momentum in equities swung from growth and tech names to what was still beaten down value, travel, and retail names. Their shares are currently trading down around 40% from their all-time high but to be fair have held onto much of their 2020 gains. Having consolidated and traded sideways for much of 2021, it’s probably a good time to take stock of their potential for the second half of this year and beyond.
Earlier this month the company reported their Q1 earnings and both Wall Street and Main Street alike got some good insight into their revenue engine and what might be in store over the coming months.
Zoom’s Q1 EPS smashed analyst expectations while revenue also came in ahead of the consensus with an impressive 191% year on year jump. Keep in mind that this time last year the same print was up 170% so they can’t be accused of slowing down their expansion. Free cash flow was 62% higher than expected and management also guided higher for their Q2 numbers and their full-year 2021 numbers.
By any measure, it was a stellar report, with plenty of indications that they made the most of the hype that surrounded the stock last year and has captured market share both upstream and downstream. The number of customers paying more than $100,000 a year was up 160% compared to Q1 of last year while the number of customers with more than 10 employees was up 80% over the same period.
Zoom’s CEO, Eric Yuan, struck a deservedly bullish tone with the release when he said “we kicked off the fiscal year with a very strong first quarter, posting 191% total year-over-year revenue growth combined with strong profitability and cash flow. Our steadfast commitment to empowering customers to work and learn from anywhere with our expansive, innovative, and frictionless video communications platform continued to drive our results. With this solid start, we are pleased to raise our total guidance range to $3.975 billion to $3.990 billion for the full fiscal year”.
Though it took a few sessions, the bulls quickly gained control after the release and shares have rallied more than 8% in the past week, putting them up 25% over the past month. For all that though, there are still plenty of voices calling for caution, not least because of the company’s triple digit price-to-earnings (PE) ratio. This was undoubtedly one of the reasons Zoom saw its shares slide in the first half this year, as growing concerns about a fast-growing inflation print took the shine of tech stocks for many investors. But even then there was no catastrophic retracing towards pre-COVID levels and shares look to be comfortably treading water around the same levels they traded at last September.
Considering the vaccine rollout is inching towards completion and employees are starting to return to the office, there’s a lot to be said for the fact that Zoom shares are trending upwards at the same time. We also saw the major indices shrug off a 5% inflation print this week, as they all closed in on fresh all-time highs. If this is the new normal, then it looks good on Zoom.
Investors know it might be a while before the green field opportunity of 2020 repeats itself, but Zoom looks to have made the most of it and has set itself up for continued success. It might be a painful hold if you only bought into their shares last October, but for those of us on the sidelines now and considering a position, there’s a lot to like.