On Thursday, Evercore ISI maintained its In Line rating and a $70.00 price target on shares of Zoom Video (NASDAQ:ZM). The firm acknowledged Zoom's strong quarterly performance, highlighting robust operational execution, improved margin leverage, and free cash flow (FCF) generation. The company's newer product offerings, such as its contact center solution (CCaaS), phone services, and Workvivo, were noted for their impressive momentum.
The firm's commentary indicated that Zoom may be seeing a stabilization in its online segment churn and a bottoming out of the net revenue retention (NRR) for its enterprise segment. These factors are expected to contribute to revenue acceleration starting in the third fiscal quarter and an upward trend in enterprise NRR in the second half of fiscal year 2026.
Zoom's updated guidance suggested a slight increase to both revenue and earnings, with operating margins expected to jump 100 basis points to 38.7%. Furthermore, FCF margins are projected to rise by 300 basis points to 34.5%, amounting to $1.6 billion. The quarterly report showed a slight decrease in NRR to 98% from 99%, but anticipations are for it to climb in the latter half of fiscal year 2026. The company's online monthly churn reached a record low of 2.9%, down from 3.2% in the previous quarter.
The company's focus on its upmarket customer base, which includes customers with over $100,000 in annual recurring revenue (ARR), has grown by 7% year-over-year and now accounts for 31% of total revenue. This segment's revenue increased by 4% year-over-year. The CCaaS offering has seen substantial growth, ending the quarter with more than 1,100 customers, doubling year-over-year. Forty percent of the new CCaaS deals were cloud replacements, and Zoom signed its largest deal to date in this category.
Lastly, Zoom's CFO, Kelly Steckelberg, is set to resign at the end of November, with no successor yet announced. The firm expressed that her departure is unfortunate given her strong reputation.
In other recent news, Zoom Video Communications (NASDAQ:ZM), Inc. has been in the spotlight due to its improved annual revenue forecast and better-than-expected second-quarter earnings. The company's recent financial performance exceeded expectations, including a minor upward revision of its yearly forecasts, according to Citi's analysis. The encouraging signs include billing results that surpassed forecasts, an upgrade to their guidance that outperformed second-quarter results, and the lowest recorded churn rate in the Online division.
Zoom also increased its annual revenue forecast, attributing the rise to robust demand for its AI-powered collaboration tools. For the fiscal year 2025, the company now projects revenue to reach between $4.63 billion and $4.64 billion, an increase from the previous forecast. In addition to these developments, Zoom reported better-than-expected second-quarter earnings and provided upbeat guidance, including an adjusted earnings per share of $1.39, surpassing analyst estimates.
However, recent developments also include the resignation of Zoom's CFO, Kelly Steckelberg, and Citi's maintained neutral stance on the stock. Citi's position reflects a balance between the positive aspects of Zoom's recent financial achievements and the uncertainties that may affect future growth and investor returns.
InvestingPro Insights
Zoom Video Communications (NASDAQ:ZM) continues to exhibit financial robustness, as evidenced by recent data. With a market capitalization of $18.63 billion, the company maintains an attractive price-to-earnings (P/E) ratio of 21.66, reflecting investor confidence in its profitability. More impressively, Zoom has demonstrated a gross profit margin of 76.18% over the last twelve months as of Q1 2023, underscoring its operational efficiency and strong pricing power.
InvestingPro Tips highlight Zoom's financial stability, noting that the company holds more cash than debt on its balance sheet, which is a reassuring sign for investors concerned about financial resilience. Moreover, the company's impressive gross profit margins are a testament to its effective cost management and pricing strategies. For investors looking for more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/ZM.
The company's stock is also characterized by low price volatility, offering a degree of predictability in an otherwise fluctuating market. Analysts have a positive outlook, predicting Zoom will be profitable this year. These insights complement the article's discussion of Zoom's strong quarterly performance and Evercore ISI's maintained In Line rating and $70.00 price target, providing readers with a broader financial context to inform their investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.