On Tuesday, Morgan Stanley (NYSE:MS) reaffirmed its stance on Zoom Video (NASDAQ:ZM) with an Equalweight rating and a steady price target of $86.00. The firm's analysis suggests that while confidence in Zoom remains robust, it has not yet translated into heightened financial estimates.
The assessment follows Zoom's third fiscal quarter results, which indicated a slowdown in customer downsells and increased adoption of new products. For instance, as of the second quarter, approximately 25,000, or 13% of Zoom's enterprise customers, have adopted three or more products, contributing to around 66% of the company's annual recurring revenue (ARR).
Despite these positive developments, Morgan Stanley pointed out that Zoom's financial outlook does not project the acceleration in growth to persist into the fourth fiscal quarter or the 2026 fiscal year, which they found mildly disappointing. The firm believes that while the provided estimates may be on the conservative side, they set a lower-than-expected limit on potential growth acceleration, barring any strategic moves by the company.
Morgan Stanley noted that Zoom's valuation remains appealing even after a recent reevaluation of its stock price. However, the possibility of smaller earnings per share (EPS) beats and the need for revenue growth to reaccelerate to mid-single digits leaves the firm cautious. This cautious stance is reflected in their decision to maintain their current rating and price target, as they await clearer signs of sustained growth before changing their position on the stock.
In other recent news, Zoom Video Communications (NASDAQ:ZM) reported a slight revenue increase in its third-quarter earnings, exceeding its financial guidance. Goldman Sachs (NYSE:GS) maintained a Neutral rating on the company's stock, despite a 1% revenue increase and improvements in operating and free cash flow margins.
Meanwhile, Citi also maintained a Neutral rating, noting Zoom's modest improvement over previous guidance and consensus numbers. Bernstein, however, increased its price target for Zoom, citing growth in high-value customers and improved customer retention metrics.
Zoom's successful transition to an AI-focused platform was highlighted, with a significant increase in monthly active users of Zoom's AI Companion and plans for industry-specific AI solutions. Additionally, the company showed progress in its emerging products, notably its Contact Center and Workvivo offerings, the latter benefiting from a partnership with Meta (NASDAQ:META).
Despite these positive developments, analysts from Goldman Sachs and Citi expressed cautious stances due to concerns about the sustainability of revenue growth and peak margins. Bernstein also maintained a cautiously optimistic outlook, awaiting further evidence of stabilization in Zoom's core business.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Zoom Video's financial position and market performance, complementing Morgan Stanley's analysis. As of the latest available data, Zoom boasts a market capitalization of $27.4 billion, reflecting its significant presence in the video communications sector.
One of the key strengths highlighted by InvestingPro Tips is Zoom's impressive gross profit margins. This aligns with the company's reported 75.89% gross profit margin over the last twelve months, underscoring its ability to maintain profitability despite competitive pressures. Additionally, Zoom's strong financial health is evident in its cash position, with InvestingPro noting that the company holds more cash than debt on its balance sheet.
The market's recent optimism towards Zoom is reflected in its stock performance. InvestingPro data shows a significant 41.3% price return over the last six months, with a 22.58% gain in the past month alone. This upward trend has brought Zoom's stock price to 95.94% of its 52-week high, suggesting renewed investor confidence.
However, investors should note that with a P/E ratio of 31.17, Zoom is trading at a relatively high valuation multiple. This could align with Morgan Stanley's cautious stance on the stock's potential for further upside without clear signs of accelerated growth.
For those seeking a more comprehensive analysis, InvestingPro offers 13 additional tips on Zoom, providing a deeper understanding of the company's financial health and market position.
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