Zoom Video Communications , Inc.'s (NASDAQ:ZM) feverish growth slowed-down in Q2 as offices re-opened, and competition from big tech companies like Microsoft (NASDAQ:MSFT) closes in.
I am neutral on Zoom stock. (See ZM stock charts on TipRanks)
Zoom's Impressive Performance
On Monday afternoon, the California-based video communications pioneer reported second-quarter total revenue of $1.02 billion, up 54% year-over-year. That's the first time the company's revenue has exceeded the $1-billion mark.
Net income and diluted net income per share came at $316.9 million, or $1.04 per share, up from $185.7 million, or $0.63 per share in the second quarter of Fiscal Year 2021.
The number of customers contributing more than $100,000 in TTM revenue is up 131% year-over-year. In addition, the company continues to expand the scale and scope of its operations with several strategic initiatives.
"Q2 also marked several milestones on our expansion beyond the UC platform," said Zoom founder and CEO, Eric S. Yuan. "We launched Zoom Apps, bringing over 50 apps directly into the Zoom experience, and Zoom Events, an all-in-one digital events service."
Zoom’s Q2 numbers are impressive, but not remarkable enough to match past-quarter numbers when the company's sales could double or triple quarterly. Thus, there was a big sell-off in the company's shares after the release of Q2 earnings, in Monday after-hours trading.
Office Re-openings, Competition Expected to Slow Growth
For more than a year, Zoom was in the right place at the right time. The place is the video communications that help people meet virtually. The time is the spread of the COVID-19 pandemic, which made these meetings a necessity.
The problem is that these ideal conditions for Zoom's growth are beginning to ease. Thanks to growing vaccinations, offices have begun to re-open, traveling has resumed, and actual meetings are replacing virtual meetings. That's expected to taper growth for Zoom's services.
Meanwhile, competition from large tech companies is closing in. Microsoft's Teams app, for instance, reached 115 million daily active subscribers in October 2020, up from 32 million before the pandemic began, according to The Verge.
Wall Street's Take
Still, the analyst community assigns Zoom stock a Moderate Buy rating. The average ZM price target of $391.44 implies 34.5% upside to current levels of trading.
Summary and Conclusions
Zoom seems to be doing many things right, expanding the scale and scope of its operations, and reporting strong financial results.
Yet, these results aren't strong enough to please Wall Street, which is looking into the future. Many see the company's growth cooling off, as the economy re-opens and competition catches up.
Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of Microsoft.
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