| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3300 Registered: 05-2011 Posted From: 65.35.45.47 Rating: N/A |
Zoom Video is zooming modestly higher today on large beat and guidance (417.39 +7.73) Zoom Video (ZM +2%) is going zoom zoom today after reporting a significant beat-and-raise last night. As the provider of a cloud-based video-conferencing platform, Zoom Video has been one of the most direct beneficiaries of the shift to remote working, learning, etc. during the COVID-19 pandemic; in Q4 (Jan), the strength of its recent positioning was once again evident in its financials. Beyond the headline EPS and revenue numbers, Zoom's operating metrics were also impressive. Last quarter the stock pulled back on a strong beat-and-raise, but this time the stock is trading modestly higher. So, why is Q4 different? For one thing, the $0.43 upside was huge, nearly double the $0.23 upside last quarter and more in-line with the massive early-pandemic beats we saw, which included $0.47 upside in Q2. Revenue achieved big upside as well. Zoom is in that rarefied air where its earnings need to be perfect, so perhaps a modest beat is not going to cut it. A concern we had going into this earnings report was the guidance. About half of Q1 (Apr) will be lapping the huge growth of the early pandemic days. However, Zoom guided sharply above consensus for EPS and revs. A sequential increase in margins was great to see. This was a trouble area last quarter when margins took a hit because Zoom was adding a lot of free users. The hope is that those customers will convert into paying customers down the road, but such is never a certainty. Non-GAAP gross margin was down yr/yr, but at 71.3%, it was an improvement from 68.2% in Q3. Zoom expects gross margin to remain around 70% as long as it supports free K-12 education. Non-GAAP operating margin also rebounded to 40.9% in Q4, a large improvement from 20.4% in Q4 last year and a decent uptick from 37.4% in Q3. Looking ahead, investors have gotten spoiled with Zoom's monster growth rates this year. However, the yr/yr comparisons will get a lot tougher when Zoom starts to lap the start of the pandemic in Q1 (Apr) and beyond. It faces a double whammy of lapping last year's huge growth while, at the same time, encountering vaccine rollouts and related economic re-opening, which should lessen the need for video conferencing. The counterargument is that the pandemic could perhaps foster long-term structural changes in terms of remote work and moving from urban environments, which would continue to drive demand for Zoom's services. We think this is a valid argument, and Zoom should continue to see strong growth, especially with so many consumers having tried and liked Zoom. However, tougher comparisons and a rotation by investors into re-opening plays could present challenges for a high multiple stock like Zoom. |