Shares of Zoom Video Communications (ZM) surged on Tuesday, following the cloud-based communications platform's bombastic second-quarter results, that surged our profit on ZM to north of 600%! Yet again, we were able to tap a trend early enough to generate massive returns for our members.
The ongoing pandemic-driven business led to revenues that quadrupled from the prior year coupled with a sharply higher full-year guidance. It was a massive beat on the revenue estimate as the company did $663.5 million, up 355% year over year (see the chart below courtesy Zoom). And non-GAAP net income jumped to $274.8M from a prior-year $24M. In short, jaw dropping earnings!
ZOOM is clearly seeing an impressive momentum from global user adoption and enterprise scale customers utilizing the platform. Many pundits have been scratching their head and trying to make a case for high valuation since several months, only to be proven wrong each time. Even at this high valuation, we see a case for further growth for Zoom. Millions of people are using Zoom's videoconferencing to communicate with family, colleagues, teachers during the coronavirus pandemic. And there are still millions on the sidelines who are left to go on-board. And while the service is free for most users, hundreds of thousands of organizations are paying to access enhanced features. We expect this trend to continue. The risk is if ZOOM could maintain the growth post pandemic where traditional meeting environments return to normal over the next year? But, we believe that Zoom could possibly enable companies to establish a more cost effective Work from home culture, rather than being completely tossed out of their ecosystem! We expect tons of colleges and organizations to continue to embrace the hyrbid, flexible environment driving significant demand for this market leader! In other words, ZOOM may still have a crucial place in the back to normal world. It could even be a potential acquisition target for the tech giants (AAPL, MSFT, GOOG to name a few) as ZM establishes its dominance? Hence, we continue to like Zoom and maintain a HOLD on it. If you do not have any position with ZM, consider opening a small one as it continues to capitalize the momentum!