Will Zoom be able to support the return of workers to the office?

More and more employees are returning to work, which could not bode well for Zoom Video Communications Inc.

When the video conferencing company releases its third quarter results on Monday afternoon, sales are expected to increase by more than 30% and exceed $ 1 billion for the second quarter in a row as many companies remain committed to Zoom ZM,
-1.74%.
However, COVID-19 vaccinations mean fewer people are working remotely and don’t need video conferencing service at last year’s levels, especially in small businesses.

With the lifting of pandemic restrictions worldwide, with the exception of mainland Europe, Mizuho Securities analyst Siti Panigrahi would not be surprised to see a “high churn rate” among companies under. 10 employees. Zoom management, as a result, has “already reduced the risk” of the situation by “incorporating higher opt-out expectations,” he wrote.

“We expect Zoom to generate top line growth driven largely by the corporate segment. [more than 10 employees and more than $100,000 revenue]”Panigrahi said in a Nov. 15 note that rates Zoom’s stock as a buy with a target price of $ 350.

Competition has also slowly eroded Zoom’s growth rate. Pat Walravens, equity research analyst at JMP Securities, points out that Zoom’s monthly visits plunged 27% to 2.06 billion in September 2021, from a peak of 2.81 billion in March 2021. Meanwhile, MSFT from Microsoft Corp.,
+ 0.54%
Competitive Teams software has grown to more than 250 million active users, Walravens said in an Oct. 19 memo.

Then there are the aftermath of the failed $ 14.9 billion acquisition of cloud contact center software company Five9 Inc. FIVN,
-5.16%,
after Five9 shareholders scuttled the stock offer largely due to the decline in Zoom’s share price.

Read more: Zoom and Five9 may not be apart forever

The purchase of Five9 “presented an attractive way to bring our customers an integrated contact center offering,” Zoom chief executive Eric Yuan wrote in a statement. blog post. “That said, this was by no means essential to the success of our platform, nor the only way for us to offer our customers a compelling contact center solution. “

Proxy advisory firm Institutional Shareholder Services had recommended that shareholders vote against the proposal, which has been considered by a branch of the Department of Justice regarding possible foreign ownership, according to a letter dated August 27 to the Federal Communications Commission. .

What to expect

Earnings: Analysts on average expect Zoom to report earnings of $ 1.09 per share, compared to net earnings of 66 cents per share a year ago. Contributors to Estimize – a crowdsourcing platform that brings together estimates from Wall Street analysts as well as buy-side analysts, fund managers, business executives, academics and others – are planning to earnings of $ 1.09 per share on average.

Returned: Analysts on average expect Zoom to bring in $ 1.02 billion in revenue in the first quarter, up from $ 777 million in the same quarter a year ago. Contributors to the estimate also predict $ 1.02 billion on average.

Movement of stock: Zoom’s stock is down 25% this year, while the S&P 500 SPX index,
-0.14%
climbed 25%.

What else to look for

The era of COVID has permanently changed the way individuals and businesses communicate, and Zoom will be a constant cornerstone. The only question is whether the business has reached its peak.

“Where we are today in the pandemic cycle, we believe that ZM’s core business is close to or near full penetration,” said Peter Levine, Evercore ISI analyst, in an October 28 memo. which values ​​Zoom shares according to a price target of $ 255.

“If you have not yet provided your employees with a ZM license, it is unlikely at this point that we will see a significant increase to compensate for a slight increase in the churn rate. / secular investor base, and these transitions take time to unfold.

Additionally, the decision by Five9 shareholders to reject Zoom’s $ 14.9 billion takeover bid is expected to cause investors to realign their growth expectations, Levine wrote.

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