Zoom Shares Soar After Stunning Revenue And Income Growth

Between Monday and Tuesday, Zoom Video Communications ZM went from breaking a $300 closing record to ending above  the$400. This happened after the company significantly raised its fiscal-year guidance as it far exceeded analyst estimates in its latest quarterly earnings report. After it reported its fiscal Q2 earnings on Monday, its shares rose as much as 40 percent on Tuesday, with its market cap exceeding $129 billion. Only one year ago, its value was $25 billion but now it is even bigger than IBM IBM.

Zoom's sales exceeded expectations by more than 32% with profit more than doubling expectations. Its CEO Eric Yuan also revealed that Zoom signed two large corporate customers, Exxon Mobil Corp. XOM and Activision Blizzard Inc. ATVI. The company also expanded its agreement with the cloud-software giant ServiceNow Inc. NOW, which is now using Zoom's cloud-phone offering. Zoom shares gained nearly 600% on the year while the S&P 500 gained only 8.6% in the same period.

Fiscal Second Quarter

During the quarter that ended on July 31, Zoom recorded $663.5 million in revenue and brought in adjusted earnings of $0.92 cents per share. Revenue grew at a stagnant rate of 355% on an annual basis, with 81% of this growth being brought in by new customers. This is even more impressive than the 169% increase that Zoom achieved during the first quarter.

RBC analysts led by Alex Zukin reported that there was an average of 148.4 million monthly active users in the quarter, which is 4,700% up on a year over year basis. Zoom's income came close to $186 million, which is an impressive increase up from just $5.5 million in the same quarter last year.

Significantly raised guidance

As for adjusted third-quarter earnings, Zoom expects them to be in between 73 and 74 cents per share with revenue being in the range from $685 million to $690 million. Moreover, Zoom raised its guidance for the full 2021 fiscal year with $2.40 to $2.47 in adjusted earnings per share whereas prior full-year guidance was $1.21 to $1.29. As for revenue, from 1.78 billion to $1.80 billion, the company increase the range to $2.37 billion to $2.39 billion in revenue. These figures imply a 282% annualized revenue growth in the middle of the range.

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Corporate clients

While Zoom has become synonyms for video conferencing, it makes most of its money from corporations, as most individual users tend to choose the free option. The number of corporate clients who have more than 10 employees increased by more than 400% in the past year, exceeding 370,000. Moreover, Zoom added more than 200 clients who spent more than $100,000 in the past year and signed on in the second quarter. This makes a total of 988 corporate clients, which is why the company is confident its progress won't be put to a halt when social distancing measures ease.

Competition heating up

Zoom is everything but alone as it competes directly with Microsoft Corporation MSFT Teams. Then, there is also Cisco Systems CSCO, RingCentral RNG, Verizon Communications VZ, as well as Facebook, Inc. FB and Alphabet Inc. GOOGL GOOG Google that are launching its own candidates.

Although Big Tech in general skyrocketed to new heights during the pandemic, Zoom is one of the biggest tech beneficiaries as it enabled businesses to keep going despite social distancing. From May to July, Zoom made as much money in as it did throughout 2019, meaning it generated its entire prior year revenue within these three months.

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