Zoom Video's Lofty Valuation Leaves No Margin for Safety

Zoom Video Communications (NASDAQ: ZM) posted better-than-expected fiscal third-quarter earnings, and given this outperformance, management raised its guidance for the full fiscal year. But despite the significant decrease in the stock price over the last several months, the valuation indicates the market expects nothing less than stellar performance. Yet risks associated with the evolving competition in Zoom's markets remain important.

Third-quarter revenue of $167 million, up 85% year over year, far exceeded the previous guidance range of $155 million to $156 million. This outperformance was due to the increasing use of the company's products from both existing and new customers. For example, a net dollar expansion rate above 130% for the sixth quarter in a row indicates strong revenue growth from existing customers.

And the company is poised to keep on increasing its revenue over the next several quarters. Total remaining performance obligation, which represents future revenue under contract, reached $517 million, up 102% year over year.

Source Fool.com