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Analysis of Zoom Video Communication Inc.

Analysis of Zoom Video Communication Inc.

24 August 2022

Zoom: emotions will fade away, prospects will remain

The Zoom company, which promotes the priority program of the same name for videoconferencing, does not need a special introduction.

So, what can be seen from the recent quarterly report that made so much noise:

  • revenue of $1.10 billion (+8%) against expectations of $1.12 billion;
  • EPS of $0.15 per share versus $1.05 a year earlier, forecast of $0.94.

The most unpleasant thing that the capital markets reacted to is the issuer’s forecasts for the fiscal year 2023. The company lowered revenue expectations to $4.38-4.39 billion against $4.5-4.6 billion. Forecasts for net adjusted earnings were in the range of $3.70-3.77 per security, with an earlier expectation of $3.80 per share.

A strong dollar is a serious factor of pressure on the company. In addition, Zoom notes an increase in the activity of competitors (Teams, Weber) and predicts a structural slowdown in the market as a whole.

Users resort to Zoom functionality less – the excitement during quarantine has exhausted itself.

But there is also good news:

  • In comparison with the data of the first quarter, this report looks good. There is no sharp deterioration, as at the beginning of the year. It is quite possible to assume that financial indicators have fallen to their minimum values and are ready to begin recovery;
  • Zoom is a stable platform that has a pool of its users and fans. Optimization of the functionality is gradual and does not reduce the number of users.

In general, we can say that Zoom, of course, is experiencing negative pressure from the competitive environment – but it definitely does not seek to be an outsider.

The local failure of the shares by 15% after the release of the reports is attributed to the emotional reactions of the “thin” market.

The strategic goal of returning to $140 is still on pause, but it will be updated as soon as the degree of emotions decreases.

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    ARAVANA Capital management
    24 August 2022
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