The Profit Potential Behind Zoom’s Latest Growth Plans

Following a year’s delay because of the pandemic, the Olympic games are set to kick off today in Tokyo.

Unfortunately, the Olympic proceedings have already been overshadowed by the specter of variant viruses and new outbreaks of COVID-19 — not just in the athlete’s village, where cases have risen to over 90 in a couple of days, but in broader Tokyo and throughout the world.

Speaking to the International Olympic Committee recently, World Health Organization Director-General Tedros Adhanom Ghebreyesus said “… 19 months into the pandemic, and seven months since the first vaccines were approved, we are now in the early stages of another wave of infections and deaths.”

Now, the U.S. still represents an oasis, with one of the world’s highest vaccination rates and easy access to a variety of vaccines. Relatively high vaccination rates have led to businesses reopening across the country. Consumers have stepped up spending, too, thanks in part to massive government pandemic aid.

A group of economists recently polled by the Wall Street Journal estimate the economy will grow 6.9% this year and then taper off to 3.2% next year and 2.3% in 2023.

But spotting potential problems ahead, some large U.S. companies are already taking a cautious approach to returning to the office just yet.

Apple Inc. (AAPL), for instance, recently said it was delaying its plan to return to the office (three days per week) by at least a month. Microsoft Corporation (MSFT) said it will allow employees to work from home half the time, while Facebook, Inc. (FB), Twitter, Inc. (TWTR) and Spotify Technology S.A. (SPOT) have adopted permanent work-from-home policies.

The bottom line is that many employees can be just as, if not more, productive working from home. And they can do so thanks to new technologies coming online that can facilitate communication and collaboration.

Take Zoom Video Communications, Inc. (ZM), for example.

The company was founded in 2011 to create a platform that simplifies communications between individuals, employees and businesses.

Today, Zoom is a leading provider of online video and audio conference calls, as well as collaboration, chat and webinar tools. The company’s software-based conference room is utilized by businesses and individuals around the world—and it’s become widely popular in the current environment with a lot of businesses operating remotely.

Video chats and virtual meeting spaces have been vital to maintain day-to-day business operations and communications with employees during the pandemic — and their importance isn’t going away anytime soon.

After the first lockdowns were announced in the U.S. in March 2020, the company’s shares have soared over 221%.

Since the company’s IPO in April 2019, the company’s market cap has climbed from about $15.9 billion to $106.5 billion, or about 570%.

And Zoom has recently used some of its cash to make a couple of strategic tuck-in acquisitions and expand its offerings.

The company recently announced its plans to acquire a German start-up, Kites GmbH, that’s focused on machine translation capabilities. Kites GmbH was founded six years ago, and its team of research scientists is expected to help Zoom offer multilanguage translation services.

Zoom commented, “We are continuously looking for new ways to deliver happiness to our users and improve meeting productivity, and MT solutions will be key in enhancing our platforms for Zoom customers across the globe.”

Zoom is also looking to acquire cloud-based customer-service software provider Five9 Inc. (FIVN) for $14.7 billion — the company’s biggest deal to date.

The deal, which the company expects will close in the first half of 2022, will allow Zoom to delve into the lucrative contact-center market, expanding its total addressable market by $24 billion to $86 billion.

The acquisition will also allow the company to bolster its cloud-based Zoom Phone business, which lets customers switch from office telephones to the cloud. The offering helps support companies with contact center staff who work remotely.

Picking the Fundamentally Superior

What I also like about Zoom is that it has strong underlying fundamentals. In fact, the company has also topped analysts’ earnings expectations each quarter since the second quarter of 2020.

For the first quarter in fiscal year 2022, Zoom reported earnings of $402.1 million, or $1.32 per share, and revenue of $956.2 million. That represented 589.7% year-over-year earnings growth and 191% year-over-year revenue growth. Analysts were expecting earnings of $0.99 per share on $906.03 million in revenue, so Zoom posted a 33.3% earnings surprise and a 5.5% revenue surprise.

For its first quarter, Zoom also had 497,000 customers with more than 10 employees — almost six times as many as it had a year earlier — and nearly 2,000 customers contributed more than $100,000 in trailing 12 months revenue.

Zoom also achieved another quarter of triple-digit earnings and revenue growth, thanks to continuing demand for its online communications platform. Earnings and revenue are also forecast to continue to “zoom” throughout fiscal year 2022. For the company’s upcoming second-quarter earnings release, which is expected to be announced on Aug. 31, Wall Street is expecting revenue to rise over 49% from a year prior to $991 million. Analysts predict earnings will increase 26% from a year prior to $1.16 per share.

And over the past 90 days, 21 analysts revised their earnings expectations upward. As you know, positive analyst revisions typically precede future earnings surprises.

Zoom’s growing business and superior fundamentals are what put the stock on my radar last year, and I recommended the company to my Platinum Growth Club subscribers back in July 2020.

The company currently earns a “Buy” rating from my Portfolio Grader, with a Total Grade of “B” and a Quantitative Grade of “B,” which represents institutional buying pressure under the stock.

So, I see plenty of upside ahead for Zoom, especially with two important new acquisitions that can help significantly expand the company’s customer base.

But it’s far from the only high-quality stock I’ve got lined up in my Platinum Growth Club Model Portfolio. In fact, my Platinum Growth Club Model Portfolio is chock-full of fundamentally superior stocks.

I have more than 100 stocks across all of my services, and each and every one boasts strong sales and earnings growth. Of course, you don’t have to invest in all 100+ stocks. If you’d rather start small, I’ve got you covered there, too.

My Platinum Growth Club comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different stock services – Growth Investor, Breakthrough Stocks and Accelerated Profits – so you can rest assured that you’re always invested in the crème de la crème.

And as a Platinum Growth Club subscriber, you’ll have full access to all of my services, including every Weekly Update, Monthly Issue and Flash Alert, as well as my exclusive Platinum Growth Club Live Chat events. Speaking of, I recently hosted a Live Chat event for July. I covered a wide variety of topics, including my current market outlook, the second-quarter earnings season and the “Goldilocks” environment. I also took the time at the end of the session to answer subscriber questions. If you sign up now, you’ll have immediate access to the Live Chat recording and transcript.

If you’re interested in joining my Platinum Growth Club, you can click here for full details.


Louis Navellier

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:

Microsoft Corporation (MSFT), Facebook, Inc. (FB), Zoom Video Communications, Inc. (ZM)

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