The June quarter earnings season is almost over but there are still some highly anticipated quarterly reports to look forward to. After today’s close, Zoom (ZM) will report its F2Q22 results. The video conferencing platform faces some daunting comps this time around. Recall, at this point a year ago, Zoom was one of the stock market’s main beneficiaries of the global lockdowns, when it transformed itself from a niche product to one used by all swathes of the population, and this will be the first quarter measured against a full quarter of pandemic-related tailwinds.
Ahead of the print, it is this particular issue which is on Deutsche Bank’s Matthew Niknam’s mind.
“We continue to see significant upsell opportunity for Zoom upmarket, and view efforts aimed at strengthening the platform via complementary products (ie: Phone, CCaaS via Five9 acquisition, etc.) very positively,” the analyst noted. “That said, we maintain a more cautious tone around elevated churn risk in the company's SMB (small and midsize businesses).”
These small businesses are customers with less than 10 employees, which now account for 37% of Zoom’s sales, compared to a pre-pandemic level of around 20%.
Such concerns are exacerbated by economies reopening around the world. Additionally, recent Q2 earnings of other video-centric peers noted a “moderation in demand” compared to a year ago.
Zoom, of course, is aware of this situation and is taking steps to prepare for life in the post-COVID era. The acquisition of Five9, for instance - with its last twelve months of revenue consisting of 83% from the enterprise segment - helps “bolster its platform as it targets greater penetration within Enterprises, while also expanding its TAM (total addressable market) by $24bn (to $86bn total).”
For now, though, given the “prospects for moderating growth going forward,” Niknam remains on the sidelines with a Hold rating. The analyst gives ZM a $375 price target, which suggests ~9% upside from current levels. (To watch Niknam’s track record, click here)
On Wall Street, opinions are almost evenly split regarding Zoom’s prospects, with the bulls taking the lead. Based on 11 Buys vs. 10 Holds, the stock has a Moderate Buy consensus rating. The outcome is more conclusive on where the share price is heading; at $424.25, the average price target implies shares will be changing hands for ~24% premium a year from now. (See Zoom stock analysis on TipRanks)
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