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Zoom’s prospects on analysts’ radar

Post-virus winner seen despite sell-off

SUBRAT PATNAIK BLOOMBERG NEWS

The sell-off in Zoom Video Communications’s stock may have gone too far.

That’s the message from Benchmark Co.’s Matthew Harrigan and other analysts, who say the videoconferencing company is well positioned as a hybrid work services provider after riding the stay-at-home boom. And with the stock having cratered almost 85% from its 2020 pandemic peak, wiping out about $135 billion of market value, they see scope for a rally.

“The fixation on Zoom as a Covid pandemic lockdown aberration is exaggerated as global tech and financial firms recognize the permanence of hybrid work,” Harrigan said in a note to clients previewing first-quarter results released Monday afternoon.

Zoom Video Communications Inc. on Monday posted

a fiscal first-quarter profit of $113.6 million, or 37 cents a share. Earnings, adjusted for one-time gains and costs, came to $1.03 per share.

The results beat Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 88 cents per share. Revenue was $1.07 billion in the period, which matched Street forecasts.

Most major companies now offer employees the flexibility to work both from the office and from home, though even that has faced challenges because of rising covid-19 cases in many countries. Apple this month delayed a plan to require workers to come back to the office three days a week. Credit Suisse Chief Executive Officer Thomas Gottstein said he doesn’t think banks will ever return to working full time from the office.

All of that bodes well for Zoom, which unlike some pandemic darlings is still showing growth in its key metrics.

Compare that with Netflix, which wasn’t able to sustain a flood of new customers during the pandemic and shocked Wall Street last month with its first decline in subscribers in over a decade.

Analysts like Harrigan think Zoom’s product offerings can make it a post-covid winner as more employees seek flexible work arrangements.

“I think the Street is not filtering through all the tea leaves with Zoom,” said Daniel Morgan, senior portfolio manager at Synovus Trust. “They’re just kind of stamping it with the stay-at-home covid trade like Amazon or Netflix and are not really looking at the bigger fundamentals.”

Morgan Stanley analyst Meta Marshall says the quarterly report should act as a catalyst to disprove the overly bearish sentiment about Zoom’s growth.

“Renewals for contracts signed in the early stages of covid will have passed for another year in the March/April timeframe, which will provide a better view into enterprise customer retention,” Marshall wrote in a note. She has an overweight recommendation on Zoom.

Backing up the largely bullish sentiment, analysts forecast that the shares will rise 60% to $143.30 in the next 12 months, according to data compiled by Bloomberg. That’s a far cry from its 2020 closing high of $568.34.

The stock’s valuation is nowhere near as frothy as it once was. The San Jose, Calif.-based company trades at about 25 times forward earnings, down from 225 times in September 2020.

Zoom’s growth is slowing as schools restart in person, offices reopen and competition increases from Microsoft’s Teams software, Salesforce’s Slack platform and Cisco Systems’s Webex.

Overall, there is optimism among analysts that Zoom is positioned to prosper in a post-pandemic world.

“Even as we shift into a more hybrid working environment, we will need a reliable platform for virtual communication to supplement inperson meetings, and there is a strong sentiment in Zoom’s favor already from a user perspective,” said Pedro Palandrani, an analyst at GlobalX.

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2022-05-24T07:00:00.0000000Z

2022-05-24T07:00:00.0000000Z

https://edition.arkansasonline.com/article/282909504141613

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