Here's Why Zoom Stock is Still a Top Buy Despite 36% Rally in 6 Months

Core Insights - Zoom Video Communications has shown strong stock performance, rallying 36.3% over the past six months, significantly outperforming the broader Zacks Computer and Technology sector, which grew by 12.3% [1] - The company is transitioning into an AI-first platform for workplace collaboration, indicating substantial upside potential [1] Financial Performance - Zoom's latest quarterly results revealed a 3.6% year-over-year revenue growth to $1.18 billion, surpassing analyst expectations [2] - Enterprise revenues, which now account for 59$698.9 million, showcasing successful penetration into larger organizations [2] - The company maintained a non-GAAP operating margin of 38.9% and generated free cash flow of $458 million in Q3 of fiscal 2025 [2] Strategic Initiatives - Zoom's balance sheet is robust, with approximately$7.7 billion in cash and marketable securities, allowing for strategic investments and acquisitions [3] - The company has authorized an additional $1.2 billion share repurchase program, totaling$2 billion, reflecting management's confidence in the business [3] AI and Innovation - The AI strategy is gaining momentum, with AI Companion 2.0 seeing a 59% increase in monthly active users quarter over quarter [4] - Upcoming launches of Custom AI Companion and AI Companion Studio in early 2025 aim to capture additional revenue through enterprise customization [5] Market Expansion - Zoom's Contact Center solution achieved a milestone with its largest deal of over 20,000 seats in EMEA, with customer count surpassing 1,250, marking an 82% year-over-year growth [6] - The acquisition of Workvivo has led to a 72% year-over-year growth in customer count, with significant deals secured, including one with a Fortune 10 company [7] Operational Metrics - Monthly churn reached an all-time low of 2.7%, down from 3% a year ago, indicating improved customer retention [8] - Deferred revenues grew by 5% year over year to $1.38 billion, suggesting healthy future revenue recognition [8] Customer Base and Revenue - The number of enterprise customers contributing over$100,000 in trailing 12-month revenues increased by 7.1% year over year to 3,995, representing 31% of total revenues [9] Competitive Position - Despite competition from Microsoft and Cisco, Zoom's innovative and customer-centric approach differentiates it in the market [10] - The forward 12-month price-to-sales ratio of 5.08 reflects market confidence in Zoom's growth potential [10] Future Outlook - Zoom has raised its fiscal 2025 revenue guidance to between $4.656 billion and$4.661 billion, indicating approximately 2.9% year-over-year growth [12] - The Zacks Consensus Estimate for fiscal 2025 suggests a revenue growth of 2.87% to $4.66 billion and earnings of$5.43 per share, a 4.22% rise year over year [13] Investment Case - The transition to an AI-first platform positions Zoom to capture growing enterprise demand for intelligent collaboration solutions [15] - Expansion into adjacent markets through Contact Center and Workplace solutions diversifies revenue streams and increases customer stickiness [15] - Zoom's financial profile remains strong, with industry-leading margins and robust cash flow generation [15] - The stock's valuation appears attractive relative to its growth potential in the evolving workplace collaboration space [16]