It looks like Zoom (NASDAQ:ZM) is finally getting it right. And that makes Zoom stock the one to hold in the post-pandemic world as businesses and schools embrace the work-from-home culture in 2020.
It was a rocky spring for Zoom, the remote conferencing company based in San Jose, California. Its video conferencing platform was one of the hottest on the market in February and March when the novel coronavirus began forcing people inside.
But a slew of embarrassing mistakes cast serious doubt about whether the company was mature enough to hang with the big boys. And then, of course, big tech companies like Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) swooped in with their own video conferencing services.
But fortunately for Zoom stock, the company seems to have made it through its growing pains and is emerging on the other side as a stronger company — and a solid investment.
Zoom Earnings at a Glance
Zoom’s first-quarter earnings report on Tuesday was a knockout. The company reported revenue growth of 169% on a year-over-year basis and roughly doubled its revenue guidance for the full year.
For the quarter, ZM posted $328.2 million in revenue versus analysts’ expectations of $202.7 million. Earnings were 20 cents per share, versus analysts’ expectations of 9 cents per share.
For the full year, Zoom guided for adjusted earnings per share of $1.21 to $1.29, and revenue of $1.78 billion to $1.8 billion. That’s a big increase from March, when the company guided for full-year EPS of 42 cents to 45 cents and revenue between $905 million and $915 million.
CEO Eric Yuan called the results humbling:
“We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives … I am proud of our Zoom employees who dedicated themselves to support customers and the global community during this crisis. With their tremendous efforts, we were able to provide high-quality video services to new and existing customers.”
Zoom did not disclose the number of active users on the platform, but Bernstein analysts estimate ZM’s mobile app had 173 million monthly active users as of May 27, an increase from 14 million on March 4.
A Huge Turnaround for Zoom
It wasn’t that long ago that Zoom’s executive team was humbled in a different way. The company was founded in 2011, but many people didn’t start using it until the coronavirus forced businesses and schools to operate remotely.
Hackers quickly found ways through Zoom’s gaping holes in security, and “Zoombombing” became a thing. Classes, church sermons and business meetings were disrupted by people randomly dialing in. There were countless reports of meetings ruined by trolls’ homophobic or racist comments, pornography and other misdeeds.
Some districts ordered their schools to stop using the platform altogether and the FBI began investigating. In April, Yuan gave a brutally frank assessment to The Wall Street Journal, saying “I really messed up [as CEO]” and he further speculated that the company may not survive additional privacy breaches.
But it seems to have met the challenge.
Zoom quickly pushed out new privacy and security features, including 256-bit encryption, giving meetings hosts more control over participants and improved cloud recording security. It also purchased the startup Keybase so it can offer end-to-end encryption of video conferences.
Those efforts seem to have paid off. Zoom this week reported that the number of its customers with more than 10 employees grew by 354%, and the number of clients paying more than $100,000 to use ZM’s platform increased by 90% year-over-year to 769.
The New York City Public School system was also satisfied, and agreed to allow teachers to use Zoom platforms again.
The Bottom Line on Zoom Stock
Zoom isn’t out of the woods by any means. There are huge competitors — Microsoft with its Microsoft Teams platform, Alphabet with its Google Meet and Facebook with its recently launched Messenger Rooms.
Zoom will have to keep innovating to keep its advantage, but as for now, it’s soundly in the game. ZM stock is up more than 200% so far this year.
Zoom stock is rated a strong buy in my Portfolio Grader right now, where it has an ‘A’ grade.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
