Zoom Communications (ZM) is a Zack Rank #1 (Strong Buy) that is a technology company providing a cloud-based platform for video, voice, content sharing, and chat. The company enables virtual communication and collaboration, making it a popular tool for businesses, educational institutions, and individuals.
After surging higher during the pandemic, the stock lost its luster as people returned to work. Investors had lost hope, as ZM was stuck trading sideways for the last two years.
However, the last two earnings reports have helped the stock turn higher. And despite rallying 50% off its summer lows, there might be some long-term opportunity in this former high-flyer.
About the Company
Zoom was incorporated in 2011 and is headquartered in San Jose, California. The stock is valued at $25 billion, and the company employs over 7,400.
Its product suite includes solutions for virtual meetings, webinars, phone systems, and team chat, as well as Zoom Rooms for video-enabled conference spaces. Zoom has also been integrating artificial intelligence (AI) features into its platform to enhance user experience and productivity, such as with tools like AI-powered meeting summaries and transcription services.
The stock has a Zacks Style Score of “A” in Momentum, and “C” in Growth. However, the stock has a “D” in Value, with a Forward PE at 15.
Q3 Earnings
Zoom delivered solid earnings for the quarter, reporting earnings of $1.38 per share, surpassing the analyst consensus of $1.31 by 5.34%. This marked a 6.98% increase compared to the $1.29 per share reported in the same period last year.
Quarterly revenue reached $1.18 billion, slightly above the consensus estimate of $1.16 billion by 1.16% and reflecting a 3.59% year-over-year increase from $1.14 billion.
For the fourth quarter of fiscal year 2025, Zoom anticipates revenue between $1.175 billion and $1.180 billion, with non-GAAP diluted EPS projected to range from $1.29 to $1.30. For the full fiscal year 2025, the company forecasts revenue between $4.656 billion and $4.661 billion and EPS between $5.41 and $5.43.
Zoom Video Communications, Inc. Price and EPS Surprise
Zoom’s Board of Directors approved an additional $1.2 billion for the repurchase of its Class A common stock, bringing the total remaining authorization under the repurchase program to approximately $2.0 billion.
Shares hit two-year highs before the earnings report. But despite the earnings beat, shares fell almost 7% amid tempered expectations for future performance.
Analysts Mixed on Outlook, But Estimates Headed Higher
Analysts offered mixed reactions following Zoom’s third-quarter earnings, which featured solid results but left investors cautious due to muted guidance.
Goldman Sachs raised its price target to $86, citing strong enterprise revenue growth of 6%, record-low online churn, and significant AI momentum with a 59% increase in AI Companion monthly active users. However, the firm noted the conservative fourth-quarter guidance undermined confidence in near-term growth potential.
Similarly, JPMorgan maintained a Neutral rating with an $80 target, highlighting deceleration in revenue growth projections and suggesting investors may await clearer visibility on long-term growth and margins.
Other analysts have expressed a more optimistic outlook, with several raising price targets significantly. Notable adjustments include Evercore ISI upgrading the stock to Outperform and increasing the target from $70 to $115, and Rosenblatt maintaining a Buy rating while boosting the target from $78 to $95.
Since reporting earnings, analyst estimates have been taken higher.
For the current quarter, estimates went from $1.28 to $1.30 since EPS, or 3% higher. And for the next quarter we saw a similar movement higher.
While that is not too impressive for a growth stock, we see a slightly better trend upwards over the long run. For the current year, the last 90 days have seen estimates go from $5.31 to $5.42, or 2%.
For next year, analysts now see $5.28 v $5.20, a move of 1.5% higher.
The Technical Take
The stock sold off after earnings, which might be warranted after a big run and conservative guide. However, this sell-off could give investors a good entry point into next year.
Here are some support levels to watch as we head into 2025:
21-day Moving Average (MA): $81.50
50-day MA: $75.00
200-day MA: $65.75
The 50% Fibonacci support level aligns closely with the 50-day moving average at $75, creating a strong confluence of support that often serves as a prime entry point.
If the scenario of a larger market sell-off event, the 61.8% level at $70 would be the next spot to watch.
In Summary
Zoom Video Communications remains a compelling story for long-term investors, blending solid fundamentals with a renewed focus on innovation, particularly in AI. While near-term growth expectations have moderated, the company’s consistent earnings beats, robust cash flow, and strategic share repurchase program highlight its confidence in the business.
The recent sell-off, coupled with strong technical support levels, offers an attractive entry point for those willing to navigate short-term uncertainties. With its enterprise strength and evolving product suite, Zoom is positioned to capitalize on future growth opportunities, making it a stock worth watching as it rebuilds momentum into 2025.
— Jeremy Mullin
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Source: Zacks