What happened

Shares of Zoom Video Communications (NASDAQ:ZM) were climbing again last month as the videoconferencing specialist dazzled investors in its first earnings report as a publicly traded company. Those gains were enough to offset a mysterious sell-off later in the month as the stock finished June up 11%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, Zoom surged following its June 6 earnings report, but then gave back some of those gains toward the end of the month.  

ZM Chart

ZM data by YCharts.

So what

Shares jumped 18.4% on June 7 after the first-quarter earnings report came out. It showed that revenue surged 103% to $122 million, easily besting the analyst consensus at $112 million. Revenue from customers spending more than $100,000 annually jumped 120%, meaning that Zoom is successfully scaling up its customers to higher-value services, a sign of success for software-as-a-service (SaaS) stocks. 

A group of people in an office watching a video monitor.

Image source: Getty Images.

The company also reported a profit of $1.6 million under generally accepted accounting principles (GAAP), better than the $1.7 million loss it reported in the quarter a year ago. And it had adjusted earnings per share of $0.03, up from breakeven a year ago, and beating estimates at breakeven.

Zoom also guided to full-year revenue of $535 million to $540 million, better than the analyst consensus at $526 million. 

The stock tacked on another 8.5% in the next session as investor enthusiasm continued to push it higher. But it gave up much of those gains later in the month as it fell 11%, although there was no particular news out on the company. Instead, the stock seemed to fall on valuation concerns along with other recent high-flying IPOs.

Now what 

To start July, Zoom stock got dinged again as Goldman Sachs issued a sell rating on the company, again on valuation concerns, as analyst Heather Bellini said that market expectations had gotten ahead of themselves. Bellini nonetheless raised her price target from $53 to $66 to account for the stock's massive gains since its April IPO.

Through July 10, the stock is up 4.3% this month and 157% since its IPO less than three months ago. Zoom's growth rate is certainly impressive, but with a market cap already at $25 billion on just $535 million to $540 million in expected revenue this year, it's fair to ask if the stock is now overvalued.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.