Zoom Faces High Expectations in Earnings Test After 120% Surge

(Bloomberg) -- Zoom Video Communications Inc. reports its first results as a public company Thursday after the market close, and based on how the stock has performed since its April debut, Wall Street is expecting a lot.

The video-conferencing company has more than doubled since its IPO, making it one of the top U.S. launches of the year, according to data compiled by Bloomberg. While there is broad optimism about Zoom’s growth potential, the rally has resulted in a valuation that analysts see as elevated, and it may have created an environment where shares are vulnerable in the event the company fails to live up to forecasts.

“There is definitely a high level of expectations going into the first quarter,” wrote JPMorgan, which has an overweight rating on the stock. Morgan Stanley said that in order for the stock to move past the firm’s $75 base-case scenario, "Zoom will have to post 110%+" year-over-year revenue growth.

RBC Capital Markets is expecting “meaningful upside” to analysts’ consensus in the quarter “as the company remains a disruptive force in its markets.” It is also expecting “strong upside” in the company’s second-quarter and 2020 outlooks, though share-price gains may be limited as the valuation is “fair.”

Beyond revenue, a focus in the quarter will be how Zoom is expanding and monetizing its user base. JPMorgan forecast 74% growth in new customers, along with an 11% gain in annual revenue per customer. The firm also expects investors to zero in on the metric of Zoom’s net dollar expansion rate, which measures how much added revenue it draws from existing customers. That figure has been around 140% over the past couple of quarters; both JPMorgan and Morgan Stanley are expecting a similar print in the current quarter.

Another point of interest will involve the company’s Zoom Phone service. While the business’ small size won’t “move the needle in terms of revenue,” JPMorgan wrote, “we are looking for how early customer trials and feedback has gone to give a signal of the future growth potential.” RBC’s focus for the earnings call will be on early reception of Zoom Phone, as well as broader commentary around demand and competition.

Shares of Zoom advanced 1.2% ahead of the results on Thursday.

Just the Numbers

• 1Q adjusted EPS estimate 1 cent (range: loss of 2 cents/share to earnings of 5 cents)
• 1Q revenue est. $111.4 million (range: $108 million to $123 million)
• 1Q gross margin est. 81%
• 2Q adjusted EPS est. 1 cent
• 2Q revenue est. $122.3 million

Data

• 7 buys, 10 holds, 1 sell
• Avg PT $75, implies downside of about 4.5%
• Implied one-day share move following earnings: 10%

Timing

• Earnings expected after the market closes on June 6
• Conference call scheduled to begin at 5 p.m.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jeremy R. Cooke, Morwenna Coniam

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