On Tuesday, Goldman Sachs maintained a Neutral rating on Zoom Video (NASDAQ:ZM) stock but increased its price target from $72.00 to $86.00. The adjustment followed the company's third-quarter earnings report, which indicated a slight revenue increase of 1% compared to consensus estimates.
The firm also reported improvements in operating margin by 90 basis points and free cash flow margin by 800 basis points. Additionally, billings grew by 350 basis points.
Despite these positive outcomes, Zoom's stock experienced a 5% drop in after-hours trading. This decline was attributed to the company's fourth-quarter guidance, which projected a 2.7% revenue increase, falling short of expectations.
This has led to concerns regarding the immediate potential for growth acceleration and the possibility of a significant revaluation of the stock, which had previously risen due to a variety of factors including clarity on AI monetization and a strong rally in software stocks post-election.
Goldman Sachs highlighted several positive aspects of Zoom's performance, such as the 6% growth in enterprise revenue, consistent net revenue retention at 98%, and a record-low churn rate in the online segment.
The firm also noted a significant increase in monthly active users of Zoom's AI Companion, which grew by 59% quarter-over-quarter, suggesting a solid foundation for future AI monetization.
Furthermore, Zoom has shown progress in its emerging products, with a notable increase in customers for its Contact Center and Workvivo offerings, the latter benefiting from a partnership with Meta (NASDAQ:META).
These developments suggest that Zoom is beginning to establish a presence in the enterprise market and could drive growth over the medium term.
Despite these encouraging signs, the report by Goldman Sachs indicates that Zoom's growth has not yet reached an inflection point. With the fourth-quarter guidance suggesting a potential deceleration, the firm has decided to maintain a cautious stance.
It awaits further evidence of stabilization in Zoom's core business and a meaningful contribution from new products to support a growth inflection beyond low single digits.
InvestingPro Insights
Recent InvestingPro data offers additional context to Zoom's financial landscape. The company boasts a market capitalization of $27.4 billion, reflecting its significant presence in the video communications sector. Zoom's impressive gross profit margin of 75.89% for the last twelve months as of Q2 2025 aligns with Goldman Sachs' observation of improved operating margins.
InvestingPro Tips highlight Zoom's financial strength, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short term obligations." These factors contribute to Zoom's ability to invest in emerging products and AI capabilities, as mentioned in the article.
The stock's recent performance is noteworthy, with InvestingPro data showing a 14.51% return over the last week and a 22.58% return over the last month. This aligns with the article's mention of a "strong rally in software stocks post-election," although the recent 5% drop in after-hours trading suggests some volatility.
Investors seeking a more comprehensive analysis can access 11 additional InvestingPro Tips for Zoom, providing a deeper understanding of the company's financial health and market position.
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