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The time of dreams



Focus on video communications

The stock remains under considerable selling pressure, as investors adjust their thinking on the video conferencing company as its growth rate continues to decline and the world emerges from the pandemic.

Zoom (ticker: ZM) publishes its financial results after the market close on Monday. For the fiscal third quarter through Oct. 31, the company forecast revenue of $ 1.02 billion, with non-GAAP earnings of $ 1.07 to $ 1.08 per share. Street’s estimates call for $ 1.02 billion and $ 1.09 per share.

Zoom shares have fallen 28% since the company released its July quarter results, reflecting growing concerns about both slowing growth and increased competition from other players in the video conferencing space. , especially Microsoft Teams. Since Zoom released its last financial results, the company has suffered the collapse of its proposed acquisition of the call center software operator


Five9

(FIVN).

With its core video conferencing business under pressure, Zoom has moved more aggressively into new areas, particularly Zoom Phone, the company’s cloud-based telephony business. But competition in this market remains fierce,


RingCentral

and others. At the same time, there are concerns that use of the basic Zoom service may decrease as schools and businesses reopen, reducing the need to be in Zoom meetings throughout the day.

Citi analyst Tyler Radke wrote in a research note last week that Zoom’s revenue pattern looks mixed. “Potential headwinds associated with reopening churn and summer seasonality” are likely to limit revenue growth, he said.

However, Radke also notes that “the sentiment is quite negative” and that the forecast was relatively conservative: he sees a potential of 2% to 3% on the income line. That said, Radke also said Zoom is unlikely to aggressively increase its guidance for the full year “given little signs of incremental improvement” in the business.

Radke maintains its neutral rating and its target of $ 304 on the stock, anticipating that the company’s growth rate will be heading below 20% in fiscal 2023 and beyond. And he considers the opportunities in the telephone and other areas to be small and “probably unable to compensate for a deceleration on a larger scale” in the core video conferencing segment.

Morgan Stanley analyst Meta Marshall is more optimistic. It maintains an overweight rating on the stock, although it reduced its target price this week to $ 365 from $ 400. She believes the street has scaled down Zoom’s corporate business too much and says the company is still in the early days of a $ 70 billion unified communications opportunity. Any sign of weakness in the small and medium-sized market could put pressure on the stock, she warns, but adds that she would be long if there is weakness linked to earnings.

For the fiscal fourth quarter ending in January, Street Consensus projects revenues of $ 1.02 billion and earnings of $ 1.09 per share. Last quarter, Zoom forecast FY2022 revenue of $ 4.01 billion to $ 4.02 billion, with earnings of $ 4.75 to $ 4.79 per share.

Write to Eric J. Savitz at [email protected]


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