On Thursday, Wedbush upgraded Zoom Video Communications (NASDAQ:ZM) stock from Neutral to Outperform, setting a price target of $85.00.
The firm noted that despite the competitive pressures in the Voice/UCaaS market, Zoom's enterprise revenue has risen to represent 59% of its total revenue in the most recent quarter, marking a 1% quarter-over-quarter increase.
Zoom is expected to see a re-acceleration of enterprise revenue throughout the second half of 2025. While enterprise net retention has faced slight headwinds from upsell and churn, the company has reported a decrease in churn to 2.9%.
This improvement has been attributed to stricter enforcement on accounts with outstanding payments, which has brought more stability to Zoom's Net Revenue Retention (NRR) and is anticipated to accelerate into fiscal year 2026.
Zoom's platform usage has been increasing among its customers, leading to higher spending and reduced churn. Notably, 13% of enterprise customers are now purchasing three or more products from Zoom, which accounts for 66% of the company's total Annual Recurring Revenue (ARR). These customers have seen a significant 52% improvement in net dollar churn.
The company is also experiencing low account penetration for its additional services, such as Zoom Phone, Zoom Rooms, and Contact Center, with less than 20% penetration. This indicates potential for further growth as the company expands its offerings within its existing customer base.
InvestingPro Insights
To complement the analysis of Zoom Video Communications (ZM), it's worth considering some key financial metrics and insights from InvestingPro. According to InvestingPro data, Zoom's revenue for the last twelve months as of Q4 2024 stands at $4.53 billion, with a robust revenue growth of 3.17% over the same period. This aligns with the article's discussion of Zoom's enterprise revenue growth and potential for further expansion.
InvestingPro Tips highlight that Zoom is trading at a high P/E ratio of 82.57, suggesting investors are pricing in significant future growth expectations. This valuation metric is particularly relevant given the article's focus on Zoom's potential for re-acceleration of enterprise revenue and increased platform usage among customers.
Another InvestingPro Tip notes that Zoom operates with high cash reserves relative to its market cap, which could provide the company with financial flexibility to invest in product development and expansion strategies mentioned in the article, such as Zoom Phone and Contact Center.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Zoom Video Communications, providing a deeper understanding of the company's financial health and market position.
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