By Senad Karaahmetovic
Daiwa Capital Markets analyst Stephen Bersey upgraded shares of Zoom Video Communications (NASDAQ:ZM) to Outperform following a major pullback.
The analyst hiked revenue estimates after Zoom reported better-than-feared earnings, which then results in a new price target of $121.00 per share, up from $107.00. The analyst outlines 4 takeaways from the earnings report.
“1) Solid execution in 1Q’23 gives us positive incremental conviction that core business demand is stabilizing. 2) Good guidance is likely to calm investor concerns about the potential for further top-line deceleration, in our view. 3) We think that the core business doing well, but we would still like to see management rethink the level of focus on its horizontal expansion strategy into Zoom Phone and Contact Center. 4) We focus on core business conditions outside of Zoom Phone and Contact Center efforts and suggest that investors do the same,” Bersey said in a client note.
The analyst is “impressed” by Zoom’s progress within enterprise accounts. Net-net, the analyst sees an “attractive entry point” in Zoom shares as “near-term market growth expectations have tempered.”
“Strategically, we think investors should focus on the company’s core business as we believe that ZM’s valuation is highly dependent on its core business performance. And we view management’s efforts to expand horizontally into IP phones (Internet Protocol based phones) and Contact Center is somewhat of a distraction when weighed against the market opportunity, and window of opportunity, for the company’s core business,” Bersey concluded.
Zoom stock price is up 0.8% in pre-open today.