Star-Struck

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What's going on?

Zoom’s second-quarter results blew past even the most optimistic analysts’ expectations, proving it’s not just a one-hit wonder after all.

What does this mean?

By almost any measure – revenue, profit, customers, cash flow, you name it – Zoom’s numbers were way better than the same time last year, back when talk of coronaviruses was confined to obscure epidemiology seminars. So good was its update for the three months through July, in fact, that the company’s shares climbed by 40% on Tuesday.

The only “but” was a drop in its gross profit margin from 81% to 71% as it won more small customers. Sales from businesses with fewer than 10 employees climbed to more than a third of the total, up from a fifth a year ago. That may sound like a good thing, but these commercial tiddlers are more likely to take out monthly contracts over annual ones – and they’re more expensive to look after too.

Why should I care?

For markets: Mission control
The climb in Zoom’s share price gives the company more freedom to lock in extra cash, namely by selling new shares. That’s exactly what Tesla is doing: the electric carmaker announced plans on Tuesday to raise up to $5 billion after its valuation surged this year (tweet this). Then again, with Zoom’s quarterly net profit jumping 30-fold to $186 million – and with software much cheaper to scale than car production – the company mightn’t be in the same kind of rush.

The bigger picture: All that glitters…
Even though picking up Zoom shares after a blowout report might look tempting, the stock isn’t exactly cheap. The company’s share price has been climbing even faster than its revenue, which has more than quadrupled in the past year. That means Zoom is trading at more than 90 times its revenue – compared to an average of just over two times for the S&P 500 as a whole…

Originally posted as part of the Finimize daily email.

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