The Factors Behind Zoom Video Communications’ Stunning Earnings Beat

By this point, you’ve likely at least heard of the go-to online communication platform, Zoom Video Communications, Inc. (ZM), which has made it easy for people to interact face-to-face with each other during the pandemic. As Zoom’s userbase has soared under lockdown, so too has the stock.

As I talked about last week, I was expecting Zoom to post a blowout quarter. And it sure did not disappoint! ZM surged more than 40% after walloping analysts’ earnings estimates for its second quarter in fiscal year 2021.

Zoom reported that revenue soared 355% year-over-year to $663.5 million. That topped analysts’ expectations for revenue of $500.45 million by 32.6%. Company management noted that its “ability to keep people around the world connected” ignited the massive growth in revenue during the quarter—and ultimately led Zoom to increase its full-year outlook.

Second-quarter earnings surged 1,045% year-over-year to $274.8 million, or $0.92 per share, compared to $24 million, or $0.08 per share, in the second quarter of 2020. The analyst community was expecting earnings of $0.45 per share, so Zoom crushed forecasts by a whopping 104.4%.

Zoom also reported that it had 370,200 customers at the end of the quarter, or 458% year-over-year growth. And 988 customers added more than $100,000 to its trailing 12-month revenue, or a 112% year-over-year increase.

Looking forward to the third quarter in fiscal year 2021, Zoom now expects earnings per share between $0.73 and $0.74 and revenue between $685 million and $690 million. That compares to earnings of $0.09 per share and revenue of $166.59 million in the third quarter of 2020. The earnings forecast is also substantially higher than the current consensus estimate, which calls for earnings of $0.35 per share.

For fiscal year 2021, Zoom is looking for earnings per share between $2.40 and $2.47 and revenue between $2.37 billion and $2.39 billion. That represents 585.7% to 605.7% annual earnings growth and 280.6% to 283.8% annual revenue growth.

How to Tell a Financially Strong Stock from a Short-lived “Coronavirus Stock”

While many people still see ZM as a “coronavirus stock,” even before the global pandemic Zoom’s business was booming. In the company’s fourth quarter in fiscal year 2020, revenue soared 78% year-over-year to $188.3 million.

Earnings skyrocketed 1,175% year-over-year to $15.3 million, or $0.05 per share, compared to $1.2 million, or $0.01 per share, in the fourth quarter of 2019. Adjusted earnings per share came in at $0.15, up from $0.04 in the same quarter a year ago, topping analysts’ forecasts for $0.07 per share by a whopping 114.3%.

An important lesson to learn with the incredible profits from Zoom is to focus on financial strength. And, the second-quarter results show that Zoom packs a big punch. This is why it earns the coveted AAA-rating in Portfolio Grader, as it holds an A-rating for its Fundamental Grade, Quantitative Grade and Total Grade.

While some investors are jumping on ZM now, my Platinum Growth Club subscribers have been enjoying the stock’s meteoric rise since my recommendation in July. ZM is sitting pretty with a 39% return on the Model Portfolio. 

And ZM isn’t the only stock that rallied this week; my Platinum Growth Club Model Portfolio saw a nice pop on Tuesday when Tesla (TSLA) pulled back, which tells me that money is not leaving the stock market, it’s simply sloshing from side to side. In other words, we’re in a washing machine market right now, and that money Is making its way to our fundamentally superior stocks.

This is why now is a great time to join Platinum Growth Club, as my Model Portfolio stocks represent the crème de la crème of the market. Speaking of my stocks, I’ve been tweaking my Buy Lists across all my services. I just added five new buys to my Model Portfolio in Tuesday’s Platinum Growth Club September Monthly Issue. (You can get all the details here .)

Plus, I added six new recommendations in Growth Investor last Friday and am releasing four new Breakthrough Stocks small-cap plays in today’s Breakthrough Stocks September Monthly Issue. And, as a Platinum Growth Club subscriber, you have access to every single stock.

Click here to join Platinum Growth Club today, and you’ll also receive my special report, Urgent Investor Briefing: Louis Navellier’s Crisis Master Plan, yours – absolutely free.

P.S. Our InvestorPlace offices and the customer-service phone lines are closed on Monday, September 7 along with the stock exchanges, for the Labor Day market holiday. I’ll be back in touch on Tuesday, September 8 with more Market360 articles.

Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Zoom Video Communications (ZM)

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