Has Zoom Zoomed Too Far Ahead? 5-Star Analyst Weighs In

Right place, right time. The age-old axiom really could have first been said with Zoom Video Communications (ZM) in mind. Hardly a household name before the pandemic’s arrival reshaped our communication habits, COVID-19 has given Zoom the perfect opportunity to introduce itself to the global video collaboration market.

Zoom has established itself as the de facto communication tool for everyone, from families to SMBs to schools to large conferences. It truly is a consumer staple product.

Unsurprisingly, looking ahead to Zoom’s fiscal Q1 earnings report on June 2, Rosenblatt Securities’ analyst Ryan Koontz expects the highflyer to deliver strong revenue results, “likely ahead of consensus and conservative company guidance.”

The 5-star analyst thinks Zoom’s “superior product performance and unique ease of use,” have been essential in catapulting it forward. At the same time, Koontz applauds Zoom’s handling of security issues and technical problems that surfaced during the pandemic, arguing that they “only slightly impacted the company's near-term business adoption and brand.”

That said, more of a threat to the company’s progress is the “increasing competitive threats in enterprise.” To maintain its current lofty position, ZM needs to improve “its enterprise-class features and channel.”

It is also hard to ignore the fact that Zoom’s penetration of the mainstream this year has been accompanied by a market trouncing performance; shares are up 164% in 2020. Although Koontz anticipates a strong showing on Tuesday plus estimate beating “F2Q21 and F2H21 revenue guidance,” the moon-bound surge is not one that can continue indefinitely.

Koontz said, “We believe the COVID-19 pandemic has boosted ZM from a laser focused business tool that spreads virally with minimal marketing expense into an everyday consumer brand and, among its peers, now a vital business tool in this new work from home (WFH) age… Given the stock's meteoric rise, we believe buy-side expectations are sky-high and see minimal near-term stock upside. While we see tremendous opportunity in a high-growth market, we see long valuation risks.”

Accordingly, Koontz reiterated a Neutral rating in addition to increasing the price target to $150. Should the analyst’s target be met, expect downside of 16%. (To watch Koontz’s track record, click here)

Based on 14 Holds, 8 Buys and 2 Sells, the analyst consensus rates Zoom a Moderate Buy. However, as a result of Zoom’s meteoric rise, the average price target, which comes in at $131.18, implies shares could decline by 36% over the coming months. It will be interesting to see if some analysts’ models get a makeover when Zoom reports earnings later this week. (See Zoom stock analysis on TipRanks)

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