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For a company that couldn’t seem to stop rallying last year, 2021 has been death by a thousand cuts for Zoom Video (NASDAQ: ZM). Shares of the video conferencing company hit their all-time highs in October of 2020, right around when COVID vaccines started being approved, and they’ve fallen 65% since then. But with a new variant starting to make the rounds that might be unaffected by existing vaccines, it’s not unreasonable to think that a much-needed bid could start appearing in Zoom shares shortly.

Such is the view of Loup Ventures analyst Gene Munster and his team at least, who came out on Monday with bullish comments on Zoom Video and some of their pandemic power play peers. He made the point that he preferred Zoom as a stay-at-home play, as the hybrid working environment is likely to give their shares staying power beyond the pandemic.The new addition to the bull camp comes at a time when Zoom shares’ RSI is below 30, suggesting extremely oversold conditions. For investors who are open to taking on a high risk, high reward play, Zoom presents an interesting opportunity for the long play here.

Sizing Up The Opportunity

Their latest earnings report, released last week, showed revenue growing 35% year on year. This was comfortably ahead of analyst expectations, as was their bottom line EPS. Management’s guidance for Q4’s revenue was also higher than expected, forecasted to be between $1.051 billion and $1.053 billion versus the consensus of $1.02 billion. In addition to this, the number of Zoom customers now paying more than $100,000 in annual revenue almost doubled, up 94% year over year. This is all solid stuff from a high-growth tech company and makes you wonder just how much further investors can expect Zoom shares to fall before they stop bottoming out.

As Zoom founder and CEO Eric Yuan summed up with the report, “through innovation and dedication, we will continue to deliver happiness to our customers. Looking forward, we expect to close the year between $4.079 to $4.081 billion in total revenue, representing approximately 54% year-over-year growth, alongside strong profitability and operating cash flow growth. We are well on our way to becoming an indispensable platform for enterprises, individuals, and developers to connect, collaborate, and build in the flexible hybrid world of work. We believe our global brand, innovative technologies, and large customer base position us well for the future.”

Bullish Price Targets Remain

This positive sentiment was somewhat shared but not fully matched by the teams at KeyBanc Capital Markets and Wells Fargo in the aftermath of last week’s report. Though they both refrained from downgrading their rating on Zoom stock, both teams erred on the side of caution and cut their price targets in response to what they saw as slowing longer term growth rates. Still, it’s important to note that the suggested upside from both price targets is still quite appealing; 60% from KeyBanc and their $344 price target, and 15% from Wells Fargo and their $245 price target.

Wells Fargo analyst Michael Turrin added for context, "the 4Q outlook suggests <20% revenue growth and <10% billings growth, leading to questions around normalized growth into next year (outlook to come with Q4 results). Management commentary around front-end renewal activity to us suggests billings could trough in Q4, but normalized revenue growth in this model remains tough to handicap given moving pieces tied to the SMB segment of the business (~33% of revenue) and return to normal impacts on video. We expect these headwinds to weigh on results over the next several quarters, keeping shares range-bound until clearer signs around what's next for Zoom post-hyper-growth emerge."

It's been a little more than a month since the team at J.P. Morgan gave Zoom a price target of $385, which has also only become more appealing in the weeks since Zoom’s shares have fallen an additional 30%. But retail investors have to be thinking that the professionals know what they’re doing and that the worst-case growth scenarios are already priced into Zoom’s share price. An uptick in global concerns around the new Omicron variant might just be what they need to put a bottom in and to start catching a bid.

ZM's stock price chart

source: MARKETBEAT

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