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Why Zoom Stock Soared 33% in May and Is Up 16% in June

By Beth McKenna – Jun 6, 2020 at 11:49AM

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Shares of the videoconferencing specialist have tripled in 2020.

What happened

Shares of Zoom Video Communications (ZM -1.18%), a video-first unified communications platform provider, started June with a bang, gaining 15.7% this week. This follows their 32.8% rise in May, according to data from S&P Global Market Intelligence. In 2020, shares of the hot April 2019 initial public offering (IPO) have tripled.

For context, the S&P 500 returned 5% this week after returning 4.8% last month. For the year, the index is flat.

A woman typing on a computer, whose divided screen shows the faces of nine people.

Image source: Getty Images.

So what

We can attribute Zoom stock's May gain to continued investor enthusiasm about the company's growth prospects. Demand for its communication products has soared, fueled by the surge in people working from home due to the COVID-19 pandemic.

Investors were right to be highly optimistic, as this past week showed. Zoom stock's nearly 16% rise so far in June was driven by the company's Tuesday release of amazingly strong first quarter results for fiscal 2021

In the first quarter, revenue skyrocketed 169% year over year to $328.2 million, crushing the $202.5 million Wall Street consensus estimate. Adjusted for one-time items, net income landed at $58.3 million, up from $8.9 million in the year-ago period, which translated to earnings per share (EPS) soaring 567% to $0.20. This result also demolished the consensus expectation, which was $0.09. 

Moreover, Zoom management significantly hiked its guidance for the full fiscal year. It now expects revenue of $1.775 billion to $1.8 billion -- up from $905 million to $915 million -- which, at the midpoint, represents growth of 187% year over year. It also expects adjusted EPS of $1.21 to $1.29 -- up from $0.42 to $0.45 -- or growth of about 256%.

Now what

Zoom's growth prospects remain powerful. The pandemic has accelerated the remote work trend.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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