A lot of ink has been spilled on the topic of Zoom Video (ZM) in the last four or five months – and I’m no exception. Nearly all our friends, family and coworkers are setting up Brady Bunch-esque video chats in the wake of COVID-19. Companies like Zoom became integral to our daily lives, seemingly overnight.
As such, ZM is one of the only stocks that didn’t crater in March. And, I’m proud to say, subscribers to my growth investing newsletters have been there for much of its climb to $250. (That’s nearly 2.5X its stock price before COVID-19!)
I didn’t jump on the bandwagon right away: ZM stock qualified as an Accelerated Profits trade in early May. Then by the end of June, it was shaping up as a great longer-term play. I view this evolution as a great case study for how you can deploy my Portfolio Grader system for superior profits over months and then years!
Sometimes the first step is to watch and wait: to see if Wall Street’s enthusiasm is justified, or just a lot of hype and speculation. One of the things Zoom Video (a fairly new player, founded in 2011) needed to prove to the world was that its security was up to par. The sudden surge in Zoom usage shone a bright spotlight on its privacy practices. Like many Silicon Valley peers, Zoom shares data with companies like Facebook (FB) – and its app started attracting pranksters popping into other people’s Zoom calls.
After a few weeks’ deliberation – during which ZM’s rally began to falter – Zoom Video executives came out aggressively on the side of user security. On May 7, they announced their first acquisition of Keybase, a cybersecurity startup, to deploy end-to-end encryption.
By then, ZM had become a Strong Buy in the Portfolio Grader I use to find high-quality growth plays…and it hasn’t looked back since. I recommended ZM for Accelerated Profits on the strength of its first-quarter earnings forecasts – Wall Street analysts had revised them 50% higher – not to mention that revenue and earnings were skyrocketing before the pandemic.
As the summer wore on, so did COVID-19. The worldwide outbreaks had a bigger, deeper impact on the economy than we might have thought…and that includes Zoom Video’s business.
First-quarter results were even more impressive: Total first-quarter revenue surged 169% year-over-year to $328.2 million, which topped analysts’ forecasts for $202.48 million by 62.1%. First-quarter earnings soared 555% year-over-year to $58.3 million, or $0.20 per share, up from $8.9 million, or $0.03 per share, in the first quarter of 2020. The analyst community was expecting earnings of $0.09 per share, so Zoom crushed estimates by a whopping 122.2%.
Looking forward to the second quarter in fiscal year 2021, Zoom expects total revenue between $495 million and $500 million and earnings per share between $0.44 and $0.46. That compares to revenue of $145.8 million and earnings per share of $0.08 in the second quarter of 2020.
As a result, analysts increased second-quarter earnings forecasts by an incredible 309% in a month. Zoom has posted an average 284% earnings surprise in the past four quarters—and it’s looking like another big quarterly earnings surprise is likely.
Anyone who still thinks Zoom Video is a “flash in the pan” needs to take a look at its Report Card in my Portfolio Grader:
That’s not to say that Zoom Video doesn’t have further back-end improvements to make. (What tech company doesn’t?) But, I’m happy to say, another of my Platinum Growth Club Model Portfolio companies is partnering with ZM in that effort!
ServiceNow (NOW) has a new contract with Zoom Video to help it respond to inquiries from its influx of new users – 300 million daily in April alone! – and fix issues before users even see them. To that end, Zoom started to use ServiceNow’s CSM Workflow to streamline its customer-service teams. The company is also using other services, like ServiceNow’s Virtual Agent, to handle customers’ problems in real-time.
Interestingly, ServiceNow is also a Zoom client. The company utilizes Zoom Enterprise to connect its more than 11,000 employees around the world through video meetings and remote conference rooms. ServiceNow is also upgrading its legacy hardware phone system to the Zoom Phone.
I’ve recommended NOW for about two years now. Like Zoom Video, business is booming: its 933 total customers have more than $1 million in average contract value (ACV), a 30% year-over-year increase. With so many companies looking to improve online workflows, ServiceNow is headed for further growth, with roughly 29% revenue gains for the second quarter and fiscal year 2020.
NOW is up 133% in my Platinum Growth Club Model Portfolio, where ZM is a newer buy from July 1. And I’ve been finding plenty of other Strong Buys for my various Buy Lists.
Just yesterday in Accelerated Profits, I sent out a buy alert for two more stocks. As I combed through the numbers, I found that both companies have delivered double-digit growth despite the worldwide pandemic and recession. And that looks very likely to continue. In fact, the companies are signaling a fourth-straight and fifth-straight earnings surprise, respectively.
The best way to get a full picture of my growth recommendations is to try out Platinum Growth Club. You’ll get my buy advice for NOW, ZM and my other Model Portfolio companies. You’ll even get ALL my stock alerts, monthly issues, special reports and podcasts across all my newsletters.
And, most importantly, you’ll be there when the next Zoom Video or ServiceNow comes on the scene. I’ll tell you exactly when to buy, how to buy, and how to craft your growth portfolio going forward.
Note: I also hold exclusive chats for Platinum Growth Club members, and I’ll be holding this next VIP chat on Monday. We’ll plan to discuss the recent market action, a 2020 “highlight reel,” the type of economic recovery I’m expecting, second-quarter earnings season, and (as always) I’ll answer subscriber questions. So, I hope you’ll consider starting your risk-free trial today through this link. Hope to “see” you Monday!