Zoom and Its Profits Face Analyst Scrutiny After 121% Rally

(Bloomberg) -- Zoom Video Communications Inc., whose shares have more than doubled since last month’s initial public offering, will come under fresh scrutiny on Monday when analysts from Wall Street banks that underwrote the company’s April initial public offering are set to initiate coverage.

Valuation is likely to be a central focus of analyst comments as Zoom is the best-performing IPO of the year among companies that raised more than $300 million. Shares of the cloud-based meeting technology company are trading at more than 400 times projected earnings, according to Bloomberg data. The stock rose another 5.9% percent on Friday to close at a record $79.63.

The San Jose, California-based company stands in contrast with others that have struggled in their debuts -- including Lyft Inc. and Uber Technologies Inc. -- because it is profitable. Zoom is expected to generate $51.5 million in adjusted net income in fiscal 2020 on revenue of $592 million, according to the average of analyst estimates compiled by Bloomberg.
"Profits still matter and the Street is rewarding technology companies like Zoom that have it," Daniel Morgan, senior portfolio manager at Synovus Trust, said in an interview. "It has a proven model."

Five analysts have already started coverage of Zoom. Bernstein’s Zane Chrane, one of three current bulls, said in a research note last month that Zoom’s long-term profit potential is "underappreciated" and the company is poised for "long-term sustainable share gains in video conferencing."

Rosenblatt Securities was more cautious, with analyst Ryan Koontz predicting that the pace of Zoom’s "impressive" revenue growth would slow in coming years. He has a neutral rating on the stock.

Morgan Stanley, JPMorgan, Credit Suisse and Goldman Sachs were the lead underwriters on the IPO. Other firms that may initiate coverage include Bank of America Merrill Lynch, RBC Capital Markets, Wells Fargo, JMP Securities, Keybanc Capital Markets, Piper Jaffray, William Blair and Stifel Nicolaus.

(Updates shares in second paragraph.)

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley

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