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Zoom Video can still thrive in a post-vaccine world, analysts say

Zoom Video Communications Inc. continued to show strong momentum in its latest quarter, fueling optimism that the company can keep winning new customers even once employees can more easily return to their offices.

The video-conferencing company easily topped expectations with its fourth-quarter numbers, delivering a 369% rise in revenue and an even larger increase in profits. Though the company won praise from analysts, its shares
ZM,
-9.00%

were off 1.4% in midday trading Tuesday after initially rising as much as 7.4% earlier in the session.

Zoom’s revenue growth marked a slight acceleration from the 367% increase the company posted in the third quarter, which, along with the company’s 43% free-cash-flow margin, struck William Blair analyst Matt Stotler as evidence of the company’s “solid execution in mitigating churn at the low end while continuing to drive new logo wins upmarket.”

He saw the latest numbers as a sign of the “long-term profitability” of Zoom’s business model and predicted that the company will continue to sport strong growth for years. Stotler has an outperform rating on Zoom’s stock.

Zoom’s quarterly results and commentary helped win over one former skeptic, as Piper Sandler analyst James Fish upgraded the stock to overweight from neutral and raised his price target to $541 from $501.

“Previously, valuation and the high exposure to commercial monthly paying customers kept us on the sidelines,” Fish wrote in a note to clients. “While the quarter itself did not answer the latter concern, the lead metrics suggest greater exposure to enterprise and annual/multi-year customers ahead with a more digestible valuation given visibility.”

Fish is upbeat about Zoom’s progress with its cloud-based phone offering, which he said currently has just 2% penetration of a sizable market. He estimates that the business could bring in more than $1 billion in revenue in 2022, while it has a $250 million run rate currently.

Zoom disclosed in January that Zoom Phone had sold 1 million seats within two years, and Needham analyst Richard Valera cheered the company’s momentum in this area of the business.

“Despite no update to its mid-January 1 million seat datapoint, we think growing momentum with Phone has already dispelled the notion that Zoom is a one-trick pony, and makes clear its potential to sell additional products into its base,” Valera wrote.

Valera likes Zoom’s “rapidly growing installed base into which it can cross-sell Phone, Rooms and future products” and he sees room for the company to double its revenue over the next three to four years. He has a buy rating and $540 target price on the shares.

Mizuho’s Siti Panigrahi sounded confident about Zoom’s ability to thrive even once a vaccine makes it possible for workers to go back to their offices. “In a post-vaccine world, any deceleration in

Panigrahi has a buy rating and $550 price target on Zoom’s stock.

Opinion: How the ‘new normal’ for work is challenging what it means to be a socially responsible company

Zoom shares have gained 255% over the past 12 months, as the S&P 500
SPX,
-0.81%

has risen 26%.

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