(Reuters) – Wall Street analysts raised price targets for Zoom Video Communications (ZM.O) on Tuesday as its shares were set to hit record highs, while warning that a return to office work could hamper its success in luring small corporate customers.
Zoom shares soared 39% to $452 in trading before the bell, with brokerages raising price guidance by an average of $161 after the company beat estimates for second-quarter results and lifted its annual revenue forecast.
The numbers indicate that one of the success stories during the health crisis is turning its huge free-user base into hard cash.
“With ZM now clearly established as the global leader in the video collaboration market, its success paves a more clear path to compete in the enterprise market,” Rosenblatt analysts wrote.
J.P.Morgan analyst Sterling Auty, however, warned that the churn rate for Zoom’s high-risk small customers pointed to the risk of a pullback in revenue as the pandemic eases.
“The surge in growth has come increasingly from the riskiest customer segment,” he said. “Customers with less than 10 employees reached 36% of total revenue in the quarter.”
Video conferencing platforms have become a vital part of day-to-day life for people stuck at home under the coronavirus-related restrictions, be it for work, school or socializing.
But they face the risk of a drop in usage as people return to work from big office buildings.
Zoom said on Monday it was experiencing slightly higher rates of customer cancellation than the historical average, but had factored this into its forecasts.
“While it is extremely hard to gauge where … demand will peak, it looks to us like even aggressive sales and marketing investments will not be able to stave off growth deceleration,” said Citigroup analyst Walter Pritchard.