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Zoom Video (ZM) Up 15.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Zoom Video Communications (ZM - Free Report) . Shares have added about 15.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zoom Video due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zoom Video Q1 Earnings Top Estimates, Revenues Jump Y/Y
Zoom Video’s first-quarter fiscal 2021 adjusted earnings of 20 cents per share beat the Zacks Consensus Estimate by 100%. The company had reported earnings of 3 cents per share in the year-ago quarter.
Moreover, revenues of $328.2 million surpassed the consensus mark by 61.6% and also soared 169% year over year. This outperformance was primarily driven by new customer subscriptions, which accounted for approximately 71% of growth. Existing customer subscriptions represented roughly 29% of the year-over-year growth.
Revenues from Americas (74.8% of revenues) jumped 150.1% year over year to $245.6 million. EMEA (15.6% of revenues) soared a whopping 282.8% from the year-ago quarter to $51.3 million. APAC (9.5% of revenues) were $31.3 million, up a massive 201% year over year.
User Base Jumps in Q1
As anticipated, Zoom Video benefited from the coronavirus-induced work-from-home and online-learning wave.
At the end of the fiscal first quarter, Zoom Video had roughly 265.4K customers (with more than 10 employees), up 354% year over year. Moreover, the company had 769 customers (with more than $100,000 in the trailing 12-month (TTM) revenues), up 90% year over year.
Based on support from Amazon Web Services (AWS) and Oracle cloud, Zoom Video scaled rapidly in the reported quarter. Notably, usage by customers in the Global 2000 grew more than 200% sequentially. Further, 300 million daily meeting participants, free and paid, joined Zoom meetings in April 2020, up from 10 million in December 2019.
Further, Zoom Video opened up its platform to deliver free services to more than 100,000 K-12 schools across 25 countries during the quarter.
Additionally, annualized meeting minutes’ run rate jumped from 100 billion at the end of January 2020 to more than 2 trillion meeting minutes based on April 2020 run rate.
Operating Details
Non-GAAP gross margin in the quarter under review was 69.4%, down significantly from 80.9% reported in the year-ago quarter. Higher level of free meeting minutes including those from K-12 schools in March and April dented the gross margin.
Research & development (R&D) expenses as a percentage of revenues decreased 390 basis points (bps) on a year-over-year basis to 6.4%. However, general & administrative (G&A) expense increased 130 bps to 14.8%.
Moreover, sales & marketing (S&M) expenses as a percentage of revenues were 31.5%, significantly down from 50.3% in the year-ago quarter.
Total operating expenses as a percentage of revenues were 52.8% compared 74.2% reported in the year-ago quarter
Non-GAAP operating income surged to $54.6 million from $8.2 million reported in the year-ago quarter.
Balance Sheet & Cash Flow
As of Apr 30, 2020, cash and cash equivalents and marketable securities were $1.11 billion compared with $855.2 million as of Jan 31, 2020.
Free cash flow was $251.7 million in the quarter under review compared with $15.3 million in the year-ago quarter.
Remaining Performance Obligation (RPO) was $1.1 billion, up 184% year over year. The company expects to recognize nearly 72% or $772 million of the total RPO as revenues over the next 12 months.
Guidance
For second-quarter fiscal 2021, Zoom Video expects revenues between $495 million and $500 million. Non-GAAP income from operations is expected between $130 million and $135 million. Moreover, non-GAAP earnings are expected in the 44-46 cents per share range.
However, management expects churn rate to increase and modest demand for its services as shelter-in-place restrictions are lifted. Zoom Video expects third and fourth-quarter revenues to be almost similar to second-quarter top line due to these factors coupled with aggravated economic uncertainty.
Zoom Video expects gross margin to be back in the mid-70% range within the next several quarters as it builds additional capacity in its own data centers. The company expects to increase capital expenditures for additional data center infrastructure in the rest of fiscal 2020.
Moreover, R&D is expected to increase as Zoom Video continues to invest in driving innovation and security functionality. The company is also expanding its hiring plans for the remaining year.
For the full fiscal, Zoom Video now expects revenues between $1.775 billion and $1.8 billion (up from the previous revenue guidance of $905-$915 million). Non-GAAP income from operations is expected between $355 million and $380 million (up from the past outlook of $110-$120 million). Moreover, non-GAAP earnings are expected in the $1.21-$1.29 per share range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 1948.57% due to these changes.
VGM Scores
Currently, Zoom Video has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zoom Video has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Zoom Video (ZM) Up 15.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Zoom Video Communications (ZM - Free Report) . Shares have added about 15.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zoom Video due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zoom Video Q1 Earnings Top Estimates, Revenues Jump Y/Y
Zoom Video’s first-quarter fiscal 2021 adjusted earnings of 20 cents per share beat the Zacks Consensus Estimate by 100%. The company had reported earnings of 3 cents per share in the year-ago quarter.
Moreover, revenues of $328.2 million surpassed the consensus mark by 61.6% and also soared 169% year over year. This outperformance was primarily driven by new customer subscriptions, which accounted for approximately 71% of growth. Existing customer subscriptions represented roughly 29% of the year-over-year growth.
Revenues from Americas (74.8% of revenues) jumped 150.1% year over year to $245.6 million. EMEA (15.6% of revenues) soared a whopping 282.8% from the year-ago quarter to $51.3 million. APAC (9.5% of revenues) were $31.3 million, up a massive 201% year over year.
User Base Jumps in Q1
As anticipated, Zoom Video benefited from the coronavirus-induced work-from-home and online-learning wave.
At the end of the fiscal first quarter, Zoom Video had roughly 265.4K customers (with more than 10 employees), up 354% year over year. Moreover, the company had 769 customers (with more than $100,000 in the trailing 12-month (TTM) revenues), up 90% year over year.
Based on support from Amazon Web Services (AWS) and Oracle cloud, Zoom Video scaled rapidly in the reported quarter. Notably, usage by customers in the Global 2000 grew more than 200% sequentially. Further, 300 million daily meeting participants, free and paid, joined Zoom meetings in April 2020, up from 10 million in December 2019.
Further, Zoom Video opened up its platform to deliver free services to more than 100,000 K-12 schools across 25 countries during the quarter.
Additionally, annualized meeting minutes’ run rate jumped from 100 billion at the end of January 2020 to more than 2 trillion meeting minutes based on April 2020 run rate.
Operating Details
Non-GAAP gross margin in the quarter under review was 69.4%, down significantly from 80.9% reported in the year-ago quarter. Higher level of free meeting minutes including those from K-12 schools in March and April dented the gross margin.
Research & development (R&D) expenses as a percentage of revenues decreased 390 basis points (bps) on a year-over-year basis to 6.4%. However, general & administrative (G&A) expense increased 130 bps to 14.8%.
Moreover, sales & marketing (S&M) expenses as a percentage of revenues were 31.5%, significantly down from 50.3% in the year-ago quarter.
Total operating expenses as a percentage of revenues were 52.8% compared 74.2% reported in the year-ago quarter
Non-GAAP operating income surged to $54.6 million from $8.2 million reported in the year-ago quarter.
Balance Sheet & Cash Flow
As of Apr 30, 2020, cash and cash equivalents and marketable securities were $1.11 billion compared with $855.2 million as of Jan 31, 2020.
Free cash flow was $251.7 million in the quarter under review compared with $15.3 million in the year-ago quarter.
Remaining Performance Obligation (RPO) was $1.1 billion, up 184% year over year. The company expects to recognize nearly 72% or $772 million of the total RPO as revenues over the next 12 months.
Guidance
For second-quarter fiscal 2021, Zoom Video expects revenues between $495 million and $500 million. Non-GAAP income from operations is expected between $130 million and $135 million. Moreover, non-GAAP earnings are expected in the 44-46 cents per share range.
However, management expects churn rate to increase and modest demand for its services as shelter-in-place restrictions are lifted. Zoom Video expects third and fourth-quarter revenues to be almost similar to second-quarter top line due to these factors coupled with aggravated economic uncertainty.
Zoom Video expects gross margin to be back in the mid-70% range within the next several quarters as it builds additional capacity in its own data centers. The company expects to increase capital expenditures for additional data center infrastructure in the rest of fiscal 2020.
Moreover, R&D is expected to increase as Zoom Video continues to invest in driving innovation and security functionality. The company is also expanding its hiring plans for the remaining year.
For the full fiscal, Zoom Video now expects revenues between $1.775 billion and $1.8 billion (up from the previous revenue guidance of $905-$915 million). Non-GAAP income from operations is expected between $355 million and $380 million (up from the past outlook of $110-$120 million). Moreover, non-GAAP earnings are expected in the $1.21-$1.29 per share range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 1948.57% due to these changes.
VGM Scores
Currently, Zoom Video has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zoom Video has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.