The second half of 2024 has turned out to be a solid one for Zoom Communications (ZM -1.90%), as shares of the online communications platform provider have shot up roughly 44% since the beginning of July (as of this writing).
However, the stock dipped more than 6% in pre-market trading on Nov. 25 following the release of its fiscal 2025 third-quarter results (for the three months ended Oct. 31). That may seem surprising considering that Zoom's results and guidance topped Wall Street's expectations. The company also announced that it change its corporate name to Zoom Communications as it expands its scope beyond just video and is looking to make the most of fast-growing technology trends such as artificial intelligence (AI).
Let's take a closer look at Zoom's latest quarterly performance and check why investors might want to consider buying it hand over fist.
Zoom's results exceeded expectations, and its future revenue pipeline is improving nicely
Zoom reported fiscal Q3 revenue of $1.18 billion, an increase of 3.6% from the same period last year. Its adjusted earnings increased nearly 7% on a year-over-year basis to $1.38 per share. Consensus estimates would have settled for $1.31 per share in earnings on revenue of $1.16 billion.
Even better, Zoom raised its full-year guidance. It now expects fiscal 2025 revenue to land at approximately $4.66 billion as compared to the earlier forecast of $4.65 billion. Non-GAAP (adjusted) earnings are now expected to land at $5.42 per share as compared to the prior forecast of $5.29 per share to $5.32 per share.
Zoom's improved guidance can be attributed to the improved customer spending on the company's communications platform, and that's not surprising considering its diversification beyond video as well as the integration of AI into its offerings. For instance, Zoom saw a terrific year-over-year increase of 82% in its contact center customers last quarter to 1,250.
The company introduced its contact center platform in February 2022, and last quarter's growth indicates that the demand for this solution continues to increase at an impressive pace. The good part is that Zoom's contact center business could sustain its healthy pace of growth as this market is set to grow at a healthy pace in the long run. According to one estimate, the size of the cloud-based contact center market could increase at an annual rate of nearly 27% through 2029, generating annual revenue of $86 billion at the end of the forecast period.
At the same time, the adoption of Zoom's AI Companion platform is also increasing at a healthy clip. Zoom reported a 59% quarter-over-quarter increase in the number of monthly active users using AI Companion, which is an AI assistant aimed at improving the productivity of users using the company's Zoom Workplace platform. AI Companion performs a variety of tasks ranging from summarizing emails to identifying action items to summarizing documents to synthesizing information across various apps.
The fast adoption of this platform isn't surprising. The size of the intelligent virtual assistant market is forecast to grow at an annual rate of 24% through 2030 to an annual market size of over $14 billion at the end of the forecast period, according to Grand View Research.
Overall, Zoom's expansion into additional markets, as well as the integration of AI into its communications platform, explain why the company saw increased customer spending. The number of Zoom customers who spent more than $100,000 in trailing-12-month revenue on Zoom products increased by 7% last quarter.
At the same time, the stickiness of Zoom's offerings improved. That's evident from a monthly average churn rate of 2.7% last quarter, which was down from the year-ago period's reading of 3%. This was the lowest churn rate that Zoom has ever reported. Thanks to these positive developments, Zoom's remaining performance obligations (RPO) increased by 5% from the year-ago period to $3.74 billion last quarter. RPO refers to the total value of a company's contracts that are expected to be recognized as revenue in the future. The fact that this metric increased at a faster pace than Zoom's overall revenue points toward a potential acceleration in the company's growth in the future.
An attractive valuation is another reason to buy this stock
Though Zoom's stock price fell following its beat-and-raise quarter, the discussion above indicates that better times await the company. That's why opportunistic investors might want to consider initiating a long position in this technology stock as it is trading at 29 times trailing earnings right now, a discount to the Nasdaq-100 index's earnings multiple of 33 (using the index as a proxy for tech stocks).
Meanwhile, Zoom's forward earnings multiple of 16 is even more attractive, pointing toward healthy growth in its bottom line. Buying Zoom at these multiples could turn out to be a smart long-term move, considering that its improving revenue pipeline and focus on fast-growing niches could help it grow at a faster pace than the market's expectations and deliver more stock upside.
