Shares of Zoom Video Communications (ZM) - Get Zoom Video Communications, Inc. Class A Report fell sharply Tuesday, as analysts expressed concern about valuation despite the video-conferencing company releasing a strong earnings report.
Zoom recently traded at $424.98, down almost 11%. But the stock skyrocketed 603% year to date through Monday, with usage exploding as the coronavirus pandemic forced people to stay at home.
For its fiscal 2021 third quarter ended Oct. 31, San Jose-based Zoom reported profit of 99 cents per share on revenue of $777.2 million. Analysts expected earnings of 76 cents per share with revenue of $693.95 million.
After Covid, however, the work-from-home and school-from-home dynamic may diminish, Morgan Stanley analysts said, according to Bloomberg. Morgan Stanley has an equal weight rating and a $380 price target on Zoom. The total addressable market of $100 billion leaves plenty of room for growth, but the analysts see valuation trading between their base and bullish case in the short run.
Morningstar analyst Dan Romanoff raised his fair value estimate to $176 per share from $153 after the earnings news. Zoom is “leveraging its cloud-based solutions' ease of use and innovative features, such as OnZoom and Zapps,” he wrote. “We see a long runway for growth…and we are impressed by management’s ability to over-deliver in terms of both growth and margins."
But he added that “we continue to struggle with Zoom’s valuation and view shares as overvalued.”
Oppenheimer analysts rate Zoom as perform without giving a price target. While the outlook is strong, “what's uncertain is where growth levels ultimately settle in a post-pandemic environment, with tougher year-on-year comparisons for the second half of fiscal 2022,” they said.
To be sure, J.P. Morgan analysts lifted their price target on Zoom shares to $450 from $425, and maintained a buy rating. “Looking forward, international expansion, Zoom Phone and direct/channel sales (vs online) remain the biggest growth catalysts for the company,” they wrote in a commentary.