Zoom shares up 7% amid strong earnings and coronavirus concerns

By Henry Ren
Medill Reports

Shares of Zoom Video Communications Inc., the company known for its videoconferencing platform, soared 7% Thursday as concerns over the COVID-19 outbreak intensified and the company reported quarterly earnings that beat expectations.

Backed by stronger demand for videoconferencing products as more companies and their employees work remotely, Zoom’s stock price has risen 84% this year so far. At the same time, the S&P 500 has fallen more than 6%.

The San Jose-based company booked a better-than-expected $15.3 million profit, or 5 cents per diluted share, in the quarter that  ended Jan. 31, compared with $1.2 million, or 1 cent, in the same period last year. Revenue rose 78% to $188.3 million.

“Due to the coronavirus, we have already seen significant usage of our platform and accordingly, we will expand our capacity to meet the increased demands of both paid and free users,” said Chief Financial Officer Kelly Steckelberg during a conference call after the earnings report.

However, she noted that the uptick in usage was largely attributed to free users and said it’s “very early” to tell whether these users can be turned into long-term paid users.

Piper Sandler & Co. analyst James Fish said in an interview that Zoom is becoming the “standard de facto” videoconferencing solution for various companies in different markets.

“Zoom has a tremendous opportunity in front of it that we believe it can capture across the conversion of [free] users to paid,” he wrote in a research note to investors.

Zoom forecasted first-quarter revenue of $199 million to $201 million, a 65% year-over-year increase if the top estimate is achieved, compared with the 78% increase in the quarter ended Jan. 31.

But the company’s revenue guidance appears conservative, as it implies the company would add less revenue than it did a year ago, Sanford C. Bernstein analyst Zane Chrane wrote in a note.

“We view this extremely unlikely given the tailwinds from virus concerns, strong existing customer expansion, and Zoom phone cross-sell,” he wrote.

The company said new customers accounted for 59% of its year-over-year growth in the quarter ended Jan. 31. Growth of international revenue outpaced that of the Americas, but only represents one-quarter of Zoom’s revenue.

In terms of business in China, CEO Eric Yuan said the potential is “big” and the time is “right” to enter, but the company needs to make sure it has a sustainable strategy to expand there. Zoom recently lifted the 40-minute limit for free users in China, providing an alternative for companies and schools disrupted by the coronavirus.

Zoom went public in April 2019 at $36 per share. The stock closed Thursday at $125, up $8.20 from the previous close.

Photo at top: Zoom advertisement at Denver International Airport. (Wikimedia Commons)
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