Zoom Video Communications Is Primed To Launch Higher

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By MarketBeat. Originally published at ValueWalk.

Zoom Video CommunicationsZoom Video Communications

The Zoom Video Communications Selloff Is Overextended

Shares of Zoom Video Communication (NASDAQ:ZM) have done little more than move lower since hitting the pandemic peak way back in 2020 but the selling may be over. The stock is finally trading at a more reasonable if still above-the-market-average 25X its earnings and outperforming at all levels. We ourselves were skeptical of this company’s future in the post-social-distancing world and we have been proven wrong. Not only is Zoom Video Communication proving itself to be a player in today’s digitally connected world but also to be a cash-generating powerhouse.


Q1 2022 hedge fund letters, conferences and more

Zoom Video Communications Beats And Raises

Zoom Video Communications had a great quarter producing $1.07 billion in revenue for a growth of 11.9% over last year. The revenue was only as expected relative to the Marketbeat.com consensus but it is accompanied by a better than expected margin so we’ll give them a pass. Internally, the metrics are good as well and point to continued momentum in the business. The company reports the number of clients contributing more than $100K is up 46% on a TTM basis while Enterprise clients are up 24% and compounded by a 124% increase in net dollar expansion.

Moving down to the margin, there was some margin compression but far less than anticipated. The company reported a 17.4% GAAP operating margin that, when adjusted for stock-based compensation, related charges, and other charges becomes a more robust 37.2%. On a cash-from-ops and FCF basis, margins came in at 49% and 46% while on the bottom line the $1.03 in adjusted EPS beat by $0.16.

It was the guidance, however, that really caught our attention. The company is maintaining its previous guidance for revenue of $4.53 to $4.55 billion versus the $4.54 consensus but raised the guidance for earnings. The company is now expecting $3.70 to $3.77 in adjusted EPS versus the Marketbeat.com consensus of $3.57 and there is upside risk in the outlook. The company is showing obvious momentum that is aided by the rollout of new offerings and cross-selling that should drive margin expansion.

The Institutions Are Scooping Up Zoom Video Communications

The institutional activity has been vigorous on both sides of the equation but net-bullish since the IPO. The sell-side reached a crescendo in Q2 2022 but that was matched by an increase in buying that has total institutional holdings up to nearly 56%. Based on the Q1 results, we think selling may slow down and buying pick back up and there is other big-money activity to be aware of as well. Cathie Wood and her crew at Ark Invest bought another almost-100,000 shares bringing the total held in the Ark Invest Innovation ETF up to $669 million on an as-purchased basis. The stock is now the 3rd largest of the ETF’s holdings at 7.97%.

The Technical Outlook: Zoom Video Communications Could Gain 100% Or More

The selloff in Zoom Video Communications may not be over but it is overextended and ripe for a reversal. When it comes, if that is not now, we see the potential for triple-digit gains in the stock. Not only do the analysts have it pegged at $175 for a gain of 95% but the outlook is favorable, cash flow is strong, the balance sheet is sound, and there is a relatively high short interest. The 5% short interest isn’t enough to fuel a short-squeeze but it is enough to get a short-covering rally started and, once begun, we see a full reversal following. Until then, we are marking the $80 level as a possible bottom.

Zoom Video CommunicationsZoom Video Communications

Should you invest $1,000 in Zoom Video Communications right now?

Before you consider Zoom Video Communications, you’ll want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Zoom Video Communications wasn’t on the list.

While Zoom Video Communications currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.

Article by Thomas Hughes, MarketBeat

Updated on

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