Lockdown star Zoom Video Communications, aka Zoom, beat analyst estimates again with third-quarter (Q3) results overnight, but warned of higher churn in the final quarter of the year.
That red flag, coupled with the company’s admission that growth is slowing, saw the stock fall more than 5% in after-hours trading to an implied $453, with some analysts calling into question the ‘extreme valuation’.
‘I think Zoom is a great company that provides the best video conferencing offering and has a management team that has executed exceptionally well through the very difficult circumstances it faced during the pandemic’, said Richard Windsor on Tuesday, founder of the Radio Free Mobile website.
‘I just can’t stomach the valuation of the shares’, he added.
TRIPLE-DIGIT PE
Zoom's Nasdaq-listed stock has soared from $68 levels at the start of 2020. Windsor calculates that Zoom is currently trading on 54.1-times enterprise value to 2021 sales and an eye-popping price to earnings multiple of 176.9.
Key to Zoom’s growth has been new subscribers, with big customers generating over $100,000 per year growing 136% year-on-year and small customers growing by 485% to 360,000.
This saw profit margins fall to 67% from 81% in Q3 2019 as a result of a big boost in free users that meant Zoom faced much higher cloud computing costs.
RAPID GROWTH, BUT SLOWING
The company reported a 367% jump in year-on-year third quarter revenue growth to $777.2 million, beating estimates of $693.4 million. But quarter on quarter growth makes far less exciting reading.
Revenue growth Q2 on Q1 was 102%, versus Q3 growth of 17%. Even if the top line hits the upper point of Zoom’s Q4 guidance of $806 million to $811 million, it would still only mean little more than 4% growth.
For fiscal 2021 (to 31 January), the company guided earnings in the range of $2.85 to $2.87 on revenue of $2.57 billion to $2.58 billion, above Wall Street estimates of $2.51 a share and $2.41 billion respectively.
Analysts currently forecast 2022 revenue and earnings of $3.43 billion and $2.92 respectively.
