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On Thursday, Goldman Sachs analyst Kash Rangan adjusted the price target for Zoom Video Communications , traded on (NASDAQ:ZM), increasing it to $87 from the previous target of $82, while maintaining a Neutral stock rating. According to InvestingPro analysis, Zoom currently appears undervalued, with the stock trading at $82.27 despite strong financial health metrics and robust profitability indicators. The revision comes as Zoom reported earnings that exceeded consensus expectations in certain areas, including a 3.4% rise in constant currency (CC) revenue, surpassing consensus estimates by 1.1%, a 40% operating margin which was 140 basis points higher than consensus, and a 2% increase in free cash flow compared to consensus. The company maintains impressive gross profit margins of 75.79% and holds more cash than debt on its balance sheet, according to InvestingPro data.
The stock remained unchanged in after-hours trading as investors weighed the positive earnings results against a less optimistic outlook for fiscal year 2026. Zoom’s performance in the Enterprise segment was solid, with a 3% increase over Goldman Sachs estimates and a net expansion rate (NER) holding steady at 98%. However, the guidance for Enterprise was effectively reduced due to a challenging macroeconomic environment. Goldman Sachs noted that Zoom is the first company in their coverage to report for the period, and no other companies have indicated any weakness for April.
While Enterprise results were strong, the Online segment showed some weakness, missing Goldman Sachs’ expectations by 2%, although monthly churn remained stable at 2.8%. The guidance for Online was positively affected by anticipated pricing benefits ranging from $10 to $15 million in fiscal year 2025, but the firm pointed out the potential risk of customer attrition due to the price increases, especially as it remains uncertain how small and medium-sized business (SMB) customers will respond to paying for AI functionality that has been added to the platform.
In summary, despite the increased price target reflecting the firm’s updated valuation multiples and the $5 million raise in CC revenue forecast for fiscal year 2026, Goldman Sachs expressed concerns about Zoom’s growth prospects and visibility moving forward. InvestingPro subscribers can access additional insights, including 8 more ProTips and a comprehensive Pro Research Report, which provides deep-dive analysis of Zoom’s financial health, valuation metrics, and growth potential.
In other recent news, Zoom Video Communications Inc. reported its first-quarter earnings for 2025, surpassing Wall Street’s expectations with an earnings per share (EPS) of $1.43, exceeding the forecast of $1.31. The company’s revenue stood at $1.17 billion, aligning with expectations. Zoom raised its full-year revenue guidance to a range of $4.8 to $4.81 billion, signaling a 3% year-over-year growth. JPMorgan analyst Sterling Auty increased the price target for Zoom to $85 from $80, maintaining a Neutral rating, following Zoom’s first-quarter results that exceeded its guidance framework. The company experienced a 2.9% revenue growth in the first quarter, surpassing the consensus estimate of 2.1%, with a constant currency revenue growth of 3.4%. Zoom’s enterprise revenue showed a strong 6% year-over-year increase, now accounting for 60% of the total revenue. The company plans a $1 price increase for Online monthly Pro subscriptions starting in June, expected to improve the Online segment’s outlook by $10-15 million. Despite facing macroeconomic challenges, Zoom remains optimistic about its enterprise segment, with no reported deal losses and continued investments in AI and platform expansion.
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