Zoom's Time To Shine

Zoom Video has become the poster child for a company benefiting from the coronavirus crisis and the changes in daily life that it has wrought. Zoom stock has tripled this year, and shows no sign of stopping—shares jumped 14% today ahead of Zoom’s quarterly earnings release tomorrow evening.

From a newly public and decidedly niche videoconferencing platform, Zoom has turned into the go-to service for work meetings, school lectures, and evening cocktails with friends and family. I even spoke with my almost 87-year-old grandfather via Zoom over the weekend.

At the end of April, Zoom said that it had reached 300 million daily meeting participants. With many users calling into multiple meetings per day, that suggests a user base of closer to 100 million. But the question asked by investors looking at the company's $57 billion market value is just how many of those people are actually paying to use Zoom.

Management's forecast is for about $200 million in revenue in the latest quarter, which spans the three months ending on April 30. That would be up two-thirds from the same period a year earlier. And guidance calls for 10 cents in adjusted earnings per share, versus 3 cents last year. It's rapid growth for sure—especially when it comes during the sharpest recession since the Great Depression—but not fast enough to keep up with Zoom stock's gains.

The market is betting that Zoom will blast through those estimates with much stronger numbers. Otherwise the stock is simply overvalued. The most optimistic Wall Street forecasts call for about $170 million in net income on $1.1 billion in sales in the current fiscal year. Again, that's for a company with a market value exceeding $57 billion.

And there are at least some clouds on the horizon. Zoom's would-be competitors have taken notice of the company's success, while some organizations seem wary of entrusting their potentially sensitive communications to such a young service.

Here's Barron's Eric Savitz today: 

But it is also the case that other players are pushing more aggressively into the video meeting sector. There are new or revamped offerings from Cisco Systems, Facebook, Alphabet’s Google, Microsoft, and RingCentral.

And Zoom continues to combat concerns about the security of its platform. The Department of Defense has banned its personnel from using Zoom in an official capacity, for instance. So have Bank of America, Google, SpaceX, Daimler, and the governments of Germany, Taiwan, and Singapore.

Investors will be listening closely tomorrow for updates on Zoom's paying-customer growth and progress on those security and privacy investments. Needless to say, expectations are high.

Eric has more on what to look for in Zoom's earnings report tomorrow.