Is Zoom worth $484 a share?
Zoom is living an ‘American dream’ since the beginning of the coronavirus pandemic. Compared to last year, its revenue has more than tripled while its share price is up 610% year-to-date. Its success story could continue.
- Zoom’s share price is up 611% year-to-date and remains in Wall Street analysts’ good books
- However, the company’s customer portfolio will have to remain under surveillance, says JPMorgan.
- Yet Zoom stocks should keep rising as the coronavirus pandemic continues to escalate
- At its current $484 share price, is Zoom worth ‘buying’?
Zoom stock: a pandemic success-story
Zoom Video Communications is among several American stocks that have greatly benefited from the pandemic crisis. Up 611% from the beginning of the year, its share price is currently trading at $484 on the Nasdaq when it was only worth $66 on January first.
With the coronavirus pandemic, Zoom’s videoconference services have been adopted by a significant number of new customers these last six-months. As businesses have sought to find a quick, affordable and reliable way to continue their activities during lockdown, Zoom’s solutions have become an international reference in the online-meetings sector.
At the end of its second quarter, Zoom had increased the number of its paid customers by 458% year-over-year, generating a 355% increase of its total revenue. With such profitable results, its share price naturally exploded. Its earning per share for the second quarter came in $0.63, which marks a 3050% improvement in a year.
Zoom is worth its current price, according to Wall Street
Even after its spectacular ascension, the overwhelming majority of brokers are keeping a strong bullish outlook on Zoom share price. As Zoom’s second quarter revenue and earnings smashed Wall Street estimates by 33% and 104% respectively, its share price further skyrocketed, leading the analysts to raise their 12-months price target on the company.
After Zoom’s Q2, BTIG upgraded its rating to a ‘buy’ from ‘neutral’ with a target price of $550 a share, noting that Zoom’s performance outpaced from far its peers in the Unified communications as a service (UCaaS) space.
JPMorgan upgraded its rating at ‘overweight’ and raised its target price from $220 to $425. RBC held its rating at ‘buy’ and rose its target price from $300 to $450. The bank believes that Zoom’s global widespread adoption is just beginning, its analysts having ‘greater conviction in the company’s ability to capitalise on both near- and long-term opportunities’.
Reuters consensus is currently at a ‘buy’ rating. Among the pool of analysts, Zoom target price goes from $350 to $735.
Considering that Zoom’s share price is currently at $484, the Wall Street consensus seems quite confident that it will keep its upward trajectory, even if the tech sector could lose some steam before year-end following its incredible rise over the summer.
On a technical-side, the trend is also bullish, as Zoom share price is trading above its 50-day ($328, purple line) and its 200-day ($189, red line) moving averages :
Zoom’s client portfolio is raising some concerns at JPMorgan
However, a handful of analysts say that Zoom’s client portfolio will have to remain under surveillance in the coming months. JPMorgan pointed out that the company’s customers with less than 10 employees (and which have a high churn rate) reached 36% of total revenue in the last quarter.
The over representation of this group of customers in Zoom’s address book increases the risk of a pull-back in revenue once Covid-19 dissipates, warn JPMorgan’s analysts.
On the other hand, Zoom’s second quarter publication showed that its client portfolio is also gaining some tracks among bigger companies. In three months, the videoconferencing specialist added 988 customers contributing more than $100 000 to its revenue, up 112% year-over-year.
If this trend continues, it could lower the risk attached to Zoom’s small business customers and balance its customer portfolio.
The current coronavirus situation gives extra-insurance to Zoom’s upward trend
For now, Zoom’s near-term future seems to be confirmed by the uprising coronavirus cases around Europe and, to a lesser extent, in the United States of America.
With the uprise in cases in Europe, a lot of countries have recently tightened their social-distancing rules. This mean a lot of businesses must retain their ‘work-from-home’ rhythm; a situation that is reliant on Zoom and other ‘stay-at-home’ stocks.
Furthermore, this situation could last for months. Research on a coronavirus vaccine are still a work-in-progress and the first treatments won’t be available before 2021. By then, international specialists fear that economies will have to adopt another period of lockdown, especially ahead of Christmas-time; a high-risk period as people will be reunited with their families.
With this backdrop, Zoom should easily reach its 2021 objectives, targeting a 30% revenue rise from 2020.
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