Zoom stock jumps 6% as first-quarter earnings defy inflation

Posted: 24 May 2022 6:07 pm
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The video communications platform showed it could produce earnings in a high-inflation environment. Is it a buy?

Shares of Zoom Video Communications (ZM) popped nearly 6% Tuesday after reporting better-than-expected first-quarter earnings and strong guidance for the current quarter.
The stock soared as much as 21% in after-hours trading Monday but settled back down before the opening bell Tuesday. The stock opened Tuesday at $94.56 and ended with a gain of nearly 6%. It was one of the day’s top gainers.
Investors are keen on finding a way to play the beaten-down tech sector, with many taking a selective approach as they look for stocks that can better withstand rising costs and interest rates. With Zoom demonstrating that it can produce earnings in a high-inflation environment, is it a buy now?

Zoom beats on earnings, provides strong guidance

Adjusted earnings for the quarter came in at $1.03 per share, lower than last year’s same quarter but well past Wall Street consensus estimates of $0.88, according to MarketBeat.
Revenue grew 12% year over year to $1.07 billion, primarily driven by strength in its enterprise business. The company saw a 19% year-over-year increase in customers contributing more than $100,000 dollars in trailing twelve months revenue. Revenue for the quarter was in line with analysts’ estimates, but down from the 191% revenue growth in the same quarter a year earlier.
For the current quarter, Zoom said it expects total revenue to be between $1.115 billion and $1.120 billion, which represents growth of at least 9.3%. Analysts were looking for growth of at least 7%, according to Yahoo Finance. The company anticipates adjusted earnings to come in between $0.90 and $0.92 per share, higher than the $0.87 analysts were estimating on average.
For the full year, Zoom provided total revenue guidance in the range of $4.53 billion to $4.55 billion, compared to the $4.55 billion average analyst estimates. It expects adjusted earnings between $3.70 and $3.77, versus $3.53 analysts were anticipating.

Thinking of buying Zoom stock?

Since surging more than 750% in 2020, the one-time pandemic darling has more than returned to Earth. It may have even overshot it a bit.
Now down 84% from its all-time high and feeling the pressure from the broader tech sector sell-off, investors may be wondering if the stock is oversold and if now’s a good time to buy.
For a five-year view of the performance of this stock, see the graph in our dedicated guide to Zoom stock.
While the market turmoil has shown to be far-reaching, Zoom showed that it could successfully reduce costs amid decelerating growth and in what has been a tough environment for tech stocks and, more specifically, stay-at-home stocks. The company reported stronger-than-expected gross margin of 78.6%, which came from optimizations made to the company’s cloud usage and its increasing number of colocated data centers.
Overall, analysts are largely bullish on Zoom stock. Of the 35 analysts that have provided ratings, 18 have given it either a Strong Buy or Buy, versus 16 Holds, one Underperform and no Sells of any kind. Over the next 12 months, analysts on average see the stock reaching $190.61, which would represent a 102% premium over its current price.

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At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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