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Why Zoom Stock Rocketed to a New All-Time High Today

By Joe Tenebruso – Sep 1, 2020 at 3:43PM

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The video conferencing leader's incredible growth shocked investors.

What happened

Shares of Zoom Video Communications (ZM 2.30%) soared on Tuesday, following the cloud-based communications platform's blockbuster second-quarter results. As of 3:20 p.m. EDT, Zoom's stock was up 40%.

So what

Zoom's revenue skyrocketed 355% year over year to $663.5 million, crushing Wall Street's estimates for revenue of $500.5 million. 

Millions of people are using Zoom's videoconferencing technology to communicate with friends, family, colleagues, students, and teachers during the coronavirus pandemic. And while the service is free for most users, hundreds of thousands of organizations are paying to access enhanced features. Zoom ended the quarter with more than 370,000 customers with more than 10 employees, representing a stunning year-over-year growth rate of 458%.

A person is pointing to an upwardly sloping chart.

Zoom Video Communications' torrid customer and revenue growth drove its stock price to a record high on Tuesday. Image source: Getty Images.

Moreover, these customers have shown a willingness to pay up to access more of Zoom's services. Zoom's trailing-12-month net dollar expansion rate -- which compares its current annual recurring revenue to that of the prior year -- remained above 130% for the ninth straight quarter.

Better still, Zoom is becoming more profitable as it scales its operations. Its adjusted operating and net income both rose more than tenfold to $277 million and $274.8 million, respectively. Adjusted earnings per share, meanwhile, came in at $0.92, which was well above Wall Street's estimates for EPS of only $0.45. 

Now what

Even as the economy begins to reopen, many people will continue to work and learn from home. Zoom is helping to make this possible. "Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom's video-first platform," CEO Eric Yuan said in a press release.

And despite intensifying competition from the likes of Microsoft and other communication software providers, Zoom continues to sign up new customers at a torrid rate. In turn, the company now expects its full-year revenue to surge as much as 284%, to $2.39 billion.

There aren't many businesses growing that briskly, and investors are bidding up Zoom's shares as they scramble to buy a piece of the video conferencing star.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$71.48 (2.30%) $1.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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