Zoom Video Communications (ZM) , one of the hottest IPO names of 2019, isn't showing any signs of cooling down on Friday.
Shares of the San Jose-based software and communication company rocketed 14% in pre-market trading, implying an open at a price per share that more than doubles its IPO price in April.
The major pre-market move was motivated by a stellar first-quarter earnings release that reflected a 103% year-over-year increase in revenue, beating analyst estimates handily, and a swing from a loss per share in first quarter 2018 to earnings of $0.03 per share on Thursday evening.
Gross margins came in at a massive 80.9%, high even by software standards, and is encouraging more bullish analyst opinions on the stock.
"This is what you want to see out of a company for the first quarter post IPO. Numbers across the board were significantly ahead of estimates, and the quarter was clean," J.P. Morgan analyst Sterling Auty said. "These results underscore our confidence in Zoom as our favorite stock even with the current valuation level."
Auty set a $113 price target based on the runway ahead and penetration into what he estimates to be a $40 billion market opportunity in the near term, aided by ancillary efforts in Zoom Phone and Zoom Rooms.
Yuan noted that the company has a 5,000-license deal with Zoom Phone with Ciena (CIEN) , another high flying telecommunications name, and a plan to accelerate growth of the product. Additionally, Zoom Rooms, the conference room product, was noted as an exciting opportunity to scoop up market share on its customer-focused approach.
"Zoom rooms are a really important part of our platform and addressing the whole conference room is something that Zoom can do very uniquely because of our hardware agnostic approach," CFO Kelly Steckelberg said. "That there's a significant opportunity there that I'm not sure any of our competitors are addressing completely...we're super excited about that opportunity."
To state their bullishness on attacking the massive addressable market and supplementary offerings, Zoom targeted full-year 2019 revenues in the range of $535 million and $540 million, well higher than the Wall Street consensus set at $520 million, and non-GAAP earnings as high as $0.03 per share, also above consensus.
"We believe the growth opportunity for Zoom is significant. Based on IDC estimates the (total addressable market opportunity) is huge, a $43 billion-dollar market by 2022," CEO Eric Yuan told investors on a conference call late Thursday. "But we believe that it is even larger than that as we are in the early stages of video becoming the new voice."
The stunning results forced even more cautious analysts concerned about the hulking valuation for the new name to raise estimates after the company crushed expectations on Thursday evening.
"Zoom's growth rate at scale is virtually unprecedented in software, as the current valuation of 32x CY20 revenues clearly attests to," Stifel analyst Tom Roderick said. "We remain Hold rated merely on valuation concerns, but raise our target price to $80/share to reflect our higher estimates."
As the stock is set to open substantially higher, the news will not be received overwhelmingly positive by bearish investors that shared the concern on valuation.
$ZM short interest is $450 million; 5.77 million shares shorted; 29.35% of float; 5.62% stock borrow fee. Shares shorted are up 151k, +3%, over the last week. Shorts have been relatively quiet since mid May, up only 355k as its stock price declined by 2.2%. pic.twitter.com/85aVxmXJS3— Ihor Dusaniwsky (@ihors3) June 6, 2019
Much like Beyond Meat (BYND) , the rapid post-IPO run encouraged significant short interest, which will lead to a great deal of groaning among the bears on Friday morning.
Similar to with BYND, many feel that there will be a breaking point wherein the market can no longer justify a valuation at over 30 times sales.
For Friday, though, we're finding out that time is yet to come.