Shares of Zoom Video Communications Inc. (NYSE: ZM) are trading near the record high of $121.93 ahead of its fourth-quarter 2020 earnings results on Wednesday. The stock has risen over 87% in the past year and over 52% in the past month. The company is expected to showcase a strong growth backed by the demand of the video-conferencing software.
The software is speculated to be in high demand as the coronavirus fears could increase the potential for online meetings instead of physical interactions. The number of workers operating from home is increasing as the virus has been spreading rapidly outside the China region.
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The company generates revenue from the sale of subscriptions to a video-first communications platform. Subscription revenue is driven primarily by the number of paid hosts, as well as purchases of additional products, including Zoom Rooms, Zoom Video Webinars, and Zoom Phone.
Despite having a significant market opportunity, it is difficult to predict customer adoption rates or the future growth rate and size of the market of its platform. The company will continue to invest in sales and marketing in order to address the opportunity by hiring, developing, and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time.
There is a large opportunity for growth with many of Zoom’s existing customers as the expansion of the platform continues to increase the size of customers’ subscriptions. The company continues to invest resources to enhance the capabilities of its platform. Also, international expansion is expected to be a major opportunity for the company.
For the third quarter, Zoom Video swung to a profit from a loss last year driven by higher interest income and a rise in other income. Revenue soared by 85% backed by acquisitions of new customers and expansion of existing customers. For the fourth quarter, the company expects revenue in the range of $175-176 million and adjusted EPS of about $0.07. For fiscal 2020, the company sees total revenue of $609-610 million and an adjusted EPS of about $0.27.
The stock has been considered as overvalued at current levels and has estimated returns of negative 39%. The performance outlook remained negative in the near-term while turning positive in the medium and long-term. The shares have been much above the 50-day moving average of $87.76 and the 200-day moving average of $77.59.
The market experts believe that a 20% stock correction is not likely to be a surprise in the near-term as the current valuation is a massive headwind. They recommended investors not to chase the stock at current levels due to deceleration of growth rates and high risk investing stock.
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