Deutsche Bank has set the outlook on Zoom Video Communication Inc. (NASDAQ: NASDAQ: ), increased its price target to $75 from $71, while maintaining a hold rating on the stock. The adjustment follows the company’s second-quarter fiscal year 2025 results, which showed a modest 1% year-over-year profit and a higher performance in earnings per share due to better-than-expected profits.
Zoom’s corporate segment, with nearly 60% of total revenue, showed 4% year-on-year growth. The online segment showed consistent stability, with flat growth for the third consecutive quarter.
The company’s revised revenue expectations are now up to roughly 1-2%, while forecasts for non-GAAP operating income and free cash flow (FCF) are up 4-5%, due to improved margins.
The updated 12-month price target of $75 is based on forward valuations to the year-end 2025 calendar year. Zoom stock is currently trading at 13 times the company’s estimated free cash flow per share for the calendar year 2025, with a new price target indicating a price of 14 times the free cash flow multiple for the estimated calendar year 2026.
Despite the positive aspects of the second quarter results and a slight increase in the annual outlook, Deutsche Bank only anticipates a modest improvement in top-line growth. This expected growth may be accompanied by additional margin reinvestment to gain better traction in the market segment.
In other recent news, Zoom delivered a promising performance in the second quarter of fiscal year 2025, exceeding expectations in several financial areas. The company reported a modest 1% increase in revenue compared to consensus estimates, and an operating margin of 39%, both higher than anticipated. Goldman Sachs responded to the development by raising its price target on Zoom from $70 to $72, while maintaining a neutral rating.
Zoom’s free cash flow margin is 31%, beating consensus by 300 basis points. The company also reported a record low online churn rate of 2.9%, and its customer-related prior-period growth showed an uptick of 10% year over year. In addition, Zoom’s Contact Center customer base has experienced significant growth, reflecting progress in its multi-product strategy.
InvestingPro Insights
Zoom Video Communications’ recent financial performance has set a positive tone in the market. According to InvestingPro data, Zoom has an impressive market capitalization of $21.04 billion and a forward P/E ratio of 23.79, indicating investor confidence in its earnings potential. The company’s gross profit margin remained strong at 76.05% for the last twelve months in Q2 2025, reflecting its ability to maintain profitability amid competitive pressure.
InvestingPro Tips highlights some key strengths for Zoom, including the fact that the company has more cash than debt on its balance sheet, which gives investors financial flexibility and reduced risk. Additionally, 26 analysts have revised earnings upward for the upcoming period, signaling optimism about Zoom’s future performance. The company’s valuation also shows strong free cash flow results, which are in line with non-GAAP operating income growth and free cash flow projections noted in Deutsche Bank’s report. For those interested in a more in-depth analysis, there are 11 additional InvestingPro Tips available, providing a comprehensive view of Zoom’s financial health and market position.
With its next earnings date on November 19, 2024, investors and analysts will be interested to see if Zoom can maintain its momentum and perhaps even exceed market expectations. Current fair value estimates from analysts and InvestingPro are $74.5 and $88.85, respectively, indicating potential upside from the previous closing price of $68.04. As the market anticipates Zoom’s next move, these insights can help investors make informed decisions.
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