On Tuesday, Citi maintained its Neutral rating on Zoom Video (NASDAQ:ZM) while keeping the price target unchanged at $69.00. The firm's analysis followed the release of Zoom's third-quarter financial results, which showed a modest improvement over previous guidance and consensus numbers, with a slight reacceleration in year-over-year (YoY) top-line growth to 4%. Although margins improved, they did not outperform as significantly as in previous quarters.
Zoom's third-quarter outcomes were solid, with increased guidance for the fourth quarter, while the annual free cash flow (FCF) projection remained constant. The company's efforts in enhancing online renewal rates and expanding its enterprise customer base were noted, alongside growth in new product areas such as contact center solutions and Workvivo.
Despite these positive developments, Citi expressed reservations about Zoom's stock performance, noting that the shares have already increased approximately 60% from their lows. The report highlighted concerns regarding the sustainability of revenue growth, which remains in the low-to-mid single digits, and margins that appear to have peaked. Operating margins decreased by 20 basis points YoY and are currently about 2 percentage points above the company's long-term target highs.
Citi concluded that while Zoom's third-quarter report did not reveal any major issues, the company's current financial trajectory might not be compelling enough to attract new investors. Consequently, a subdued reaction from the market regarding Zoom's share price is anticipated.
In other recent news, Zoom Video Communications (NASDAQ:ZM) reported a revenue increase in its fiscal third-quarter 2025 earnings, a figure that modestly beat the midpoint guidance by approximately 1.3%. The firm also raised its full-year guidance by 0.5%. Bernstein, in response to these developments, maintained a Market Perform rating on Zoom's stock but increased its price target from $78.00 to $89.00.
Zoom's earnings report also highlighted growth in customers spending over $100,000, which saw a year-over-year increase of 11%. Additionally, the firm reported improvements in monthly recurring revenue churn among its online customers, decreasing to 2.7%, down from 2.9% in the preceding quarter.
In other recent developments, Zoom has successfully transitioned to an AI-focused work platform, a move evident in its latest product offerings and strategic plans. The company's Q3 FY25 earnings call reported a 4% year-over-year revenue increase, reaching $1.178 billion. Enterprise customers now account for 59% of Zoom's total revenue, indicating robust performance across enterprise and online customer segments.
The company's commitment to AI innovation is underscored by the introduction of Zoom AI Companion 2.0 and plans for industry-specific AI solutions. Zoom's strategic pivot to an AI-centric platform targets vertical markets like healthcare and education and offers AI capabilities at no extra cost.
InvestingPro Insights
Recent InvestingPro data provides additional context to Citi's analysis of Zoom Video (NASDAQ:ZM). Despite Citi's cautious stance, Zoom's financial metrics reveal some strengths. The company boasts impressive gross profit margins of 75.89% for the last twelve months as of Q2 2025, underscoring its operational efficiency. This aligns with one of the InvestingPro Tips, which highlights Zoom's "impressive gross profit margins."
Moreover, Zoom's revenue for the same period stands at $4.59 billion, with a modest growth of 2.76%. While this growth rate is in line with Citi's concerns about low single-digit revenue expansion, it's worth noting that Zoom's EBITDA growth over the last twelve months has been substantial at 190.89%, indicating improved profitability despite slower top-line growth.
The market seems to be recognizing Zoom's potential, as evidenced by the stock's strong recent performance. InvestingPro Tips point out that Zoom has shown significant returns over the last week, month, and three months, with the stock price currently trading near its 52-week high. This market sentiment appears more optimistic than Citi's neutral outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Zoom Video, providing a broader perspective on the company's financial health and market position.
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