Why Zoom Video Communications Stock Is Jumping Today

Zoom Video Communications (ZM 8.00%) stock surged in Tuesday’s trading. The company’s share price closed out the daily session up 8%, according to data from S&P Global Market Intelligence.

Zoom published its fourth-quarter earnings results after the market closed yesterday and delivered a profit that came in far better than Wall Street had anticipated. The company also managed to beat sales expectations for the period.

Enterprise growth and efficiency initiatives drove Q4 beats

Zoom recorded non-GAAP (adjusted) earnings per share of $1.42 on sales of $1.15 billion in Q4. Meanwhile, the average analyst estimate had called for the business to post an adjusted per-share profit of $1.15 on revenue of $1.13 billion.

Zoom’s revenue climbed 2.7% year over year in Q4, with growth being driven by its enterprise segment. Enterprise revenue rose 4.9% year over year in the period to reach $667.3 million. Along with moderate sales growth, cost-saving initiatives helped the business significantly improve its financial performance. Operating cash flow rose 66% year over year to hit $351.2 million in the fourth quarter, and the business closed out the year with an operating cash flow margin above 35%.

Zoom’s guidance has Wall Street feeling bullish

For the first quarter, Zoom is guiding for sales to come in at roughly $1.13 billion. Management’s revenue target for the period was roughly in line with the average Wall Street analyst target, but its profit target beat expectations. The company expects adjusted earnings per share for the period to be between $1.18 and $1.20, coming in significantly ahead of the average analyst estimate’s previous call for per-share earnings of $1.15.

For the full year, Zoom is guiding for sales of $4.6 billion — a target that fell slightly short of the average analyst call for revenue of $4.66 billion. On the other hand, guidance for a profit between $4.85 per share and $4.88 per share topped the average analyst estimate for a per-share profit of $4.72 for the year.

In addition to better-than-expected Q4 performance and forward guidance, Zoom also announced a substantial stock repurchasing initiative. The company announced that its board of directors had approved up to $1.5 billion in new stock buybacks. The move likely signals that the board believes that shares are undervalued, and the repurchasing initiative should increase the company’s earnings per share.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

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