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On Thursday, JPMorgan analyst Sterling Auty increased the price target for Zoom Video Communications Inc (NASDAQ:ZM) to $85 from the previous $80 while maintaining a Neutral rating on the company’s stock. The adjustment follows Zoom’s first-quarter results, which exceeded its guidance framework, particularly in terms of revenue, benefiting from favorable foreign exchange headwinds. The company maintains impressive gross profit margins of 76% and a strong financial health score according to InvestingPro data.
Zoom reported a total revenue growth of 2.9% in the first quarter, surpassing the consensus estimate of 2.1%. The performance also included a better-than-expected operating income both in dollars and margin. On a constant currency (CC) basis, the revenue growth for the quarter was 3.4%. Adjusting for leap-year comparison effects, the growth would be approximately 4.4%. Despite these figures, the Enterprise Net Expansion rate remained unchanged at 98%, indicating stability even amidst ongoing investments in the company’s enterprise segment. With a current ratio of 4.56 and virtually no debt relative to equity, InvestingPro analysis suggests the company is currently trading below its Fair Value, making it one of the potentially undervalued stocks in the technology sector.
The company has acknowledged facing macroeconomic challenges, particularly with a subset of its larger U.S. enterprise customers, leading to more prudent sales forecasts. However, Zoom has not reported any deal losses and does not anticipate changes to the outlook for its Online segment. The prudence in the Enterprise segment has been counterbalanced by a planned $1 price increase for Online monthly Pro subscriptions starting in June, reflecting the enhanced features offered to customers. This price hike is expected to improve the Online segment’s outlook by $10-15 million, despite the headwinds in the Enterprise segment. The company’s solid financial position is reflected in its trailing twelve-month earnings per share of $3.21 and return on equity of 12%.
Zoom’s FY26 guidance has been modestly raised, accounting for improved foreign exchange dynamics and a slight increase in CC total revenue to $4.813 billion, representing a 3.2% year-over-year growth. The company’s free cash flow (FCF) guidance remains unchanged.
The recent launch of Zoom’s Custom AI Companion in April has seen positive feedback from trial customers among the Global 2000, with features such as Bring Your Own Dictionary and Index, meeting summary templates, and Jira integration being well received. While this product is off to a promising start, it is not expected to materially contribute to revenue in FY26.
In summary, JPMorgan has recognized Zoom’s ability to surpass its Q1 guidance and the company’s continued innovation. Despite a challenging macroeconomic environment and investment headwinds in the Enterprise segment, JPMorgan sees potential in Zoom’s long-term vision and engineering capabilities. The firm’s updated price target reflects these considerations while remaining cautious about the near-term growth trajectory. For deeper insights into Zoom’s financial health, valuation metrics, and eight additional exclusive ProTips, visit InvestingPro, where you’ll find comprehensive analysis and the detailed Pro Research Report available for over 1,400 US stocks.
In other recent news, Zoom Video Communications Inc. reported its first-quarter earnings for 2025, surpassing analysts’ expectations. The company’s earnings per share (EPS) reached $1.43, exceeding the forecast of $1.31, while revenue aligned with projections at $1.17 billion. Despite this earnings beat, Zoom’s stock experienced a slight decline post-earnings. The company also raised its full-year revenue guidance to between $4.8 billion and $4.81 billion, indicating a 3% year-over-year growth. Analysts from Raymond (NSE:RYMD) James have noted the rollout of Zoom’s AI capabilities, which are expected to enhance productivity for financial advisers. Additionally, Zoom continues to see strong growth in its enterprise segment, which now makes up 60% of total revenue. The company is also investing in AI and platform expansion as part of its strategic initiatives. Overall, Zoom is navigating a competitive landscape with a focus on expanding its market share in phone and contact center solutions.
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