p>Zoom Video Communications’ stock has fallen to its lowest level in more than three months after the company gave its Q2 earnings report on August 30. The video conferencing company surpassed Wall Street’s estimates, but its guidance for Q3 slightly missed profit expectations and seemed to hint at a post-pandemic slowdown.
Should investors invest in Zoom’s dip, or should they avoid the stock as more Americans go back to work and school in the real world? Let’s find out.
How fast is it growing?
Zoom’s revenue went up by 54% y/y to $1.02 billion during the Q2 and surpassed estimates by almost $30 million. Its adjusted net income went up by 51% to $415 million, or $1.36 a share, which beat expectations by $0.20. On a GAAP basis, its net income went up 71% to hit $317 million.
Zoom expects its revenue to increase 31% y/y in the third quarter of this year, which overtakes analysts’ estimates, but also expects its adjusted EPS to grow only 8%-9%, which misses expectations of 10% growth.
The company is still producing healthy growth on top of its triple percentage growth last year, but investors’ reactions seem to suggest they are still concerned about the post-pandemic growth. The stock was also trading near 73 times forward earnings and 26 times this year’s sales before its earnings report, and those high valuations show it may have hit a grand slam to go higher.
Will Zoom’s business stabilize after the pandemic?
Zoom’s margins should stay stable or increase in a post-pandemic world, since many of its new customers will stay on free plans instead of choosing paid tiers.
During the newest conference call, CFO Kelly Steckelberg stated that free users accounted for “around 30% of our usage as compared to 10% before the pandemic.” Lowering its dependence on these free users and shifting to enterprise clients could stabilize Zoom’s sock for the long-term.
I believe Zoom has plenty of room to grow since it has certainly disrupted a fragmented market which was filled with major players. Investors who believe the remote work trend will continue after the pandemic comes to an end should buy some shares of Zoom after this recent post-earnings drop. However, the stock is still on the high side and will be volatile in the near future — so it is not an ideal investment for anxious investors.
Author: Steven Sinclaire