Zoom Video Communications (NASDAQ:ZM) is perhaps the first example of what hope will continue with earnings as we close out the FQ4 reporting season and move on to Q1. Many of the recovery stocks experienced post-earnings weakness because so much of the growth was priced in. In our view, this has led and is leading to buying opportunities in many of our favorite names with the expectation that earnings trends will outpace consensus in 2021. The reason why we think earnings trends will outpace the consensus is because of the economic rebound and underlying strength in the economy.
Bringing this back around to Zoom Video Communications it is one of the later-reporting stocks in the market. The company reported its fiscal Q4 period on March 1st, a period that overlaps the calendar Q4 but does not represent it. What we’re getting at is that, because Zoom’s FQ4 is more in synch with the CQ1 period its results are an indication of what is to come for the market rather than what has already happened. Basically, Zoom’s results might be considered the first of the Q1 period and not the last of the Q4. Looking at the results from that perspective, Zoom Video Communications is forecasting a very strong year for the market indeed.
Zoom Beats Consensus, Raises Guidance
Zoom Video Communications gave the market exactly what it wanted. The strong results were better than expected, show accelerating business, and are compounded by upside guidance. Starting at the top line, the revenue of $882.5 million is up 368.7% from last year and beat the consensus by 882 basis points. The gains were driven by strong growth in both business and education channels which shows that stay-at-home tailwinds are still clearly blowing. In terms of size, the number of customers with more than 10 employees grew 470% while the number of businesses contributing more than $100K on a TTM basis is up 156%.
“In FY2021, we significantly scaled our business to provide critical communications and collaboration services to our customers and the global community in response to the pandemic… Our ability to rapidly respond and execute drove strong financial results throughout the year,” said Eric S. Yuan, Founder and Chief Executive Officer of Zoom. “As we enter FY2022, we believe we are well-positioned for strong growth with our innovative video communications platform, on which our customers can build, run, and grow their businesses; our globally recognized brand...”
Moving down the report, the results only get better. The company a 1009% increase in GAAP earnings for EPS of $0.87 or $0.39 better than the consensus. On an adjusted basis the $1.22 in EPS is up 839% and better than consensus by $0.43. The best news of all though is the guidance which implies that growth will not only continue but continue to outpace the consensus. For the Q1 period, the company is expecting $901 million in revenue versus the $835 consensus and $3.60 in adjusted EPS compared to the $2.96 consensus.
The Technical Outlook: Zoom (ing) Higher
Shares of Zoom pulled back during the fourth quarter and first two months of 2021 because of fear of slowing growth. Now the company has put those fears to rest the stock is moving higher and showing a clear bottom at the $350 level. The indicators are in support of the move as well with MACD consistent with support and stochastic showing a weak buy signal. The next session will be very important for share prices. If they can sustain the 8% surge in pre-market trading the bottom will become a reversal and a retest of the all-time high will come into play. Beyond that will depend on the Q1 results.
