Earnings Review: ZM, CRM, ZS, CRWD And DOCU

This week many of the best-performing stocks reported Q3 earnings. Zoom (ZM) kicked it off on Monday by beating earnings and revenue estimates and issuing better forward guidance. Revenues grew an astonishing 367%, while adjusted EPS grew 1000%.

Gross margins fell from 81% to 67% year over year as the company needed to spend more money to accommodate the surge in demand. Operating margins increased from -1% in Q3 last year to +25% in Q3 this year. R&D spend fell from 11% of sales in Q3 last year to 5%, and sales & marketing costs fell from 58% of sales in Q3 last year to 24%. Resulting in an operating profit of $192.2 million for the quarter. Unlike many of the high flying software plays, Zoom is profitable.

Take a look at the company’s financial results and you can see why the stocks is up 500%+ this year. Revenues over the last 4 quarters (trailing twelve months – TTM) has surpassed $2 billion.

While operating income during that same time frame has surpassed $400 million. Quite impressive for a company that’s only been public for less than 2 years.

So the stock is down 13% after earnings. It trades 72x sales, 147x forward earnings, this stuff can happen. It’s one of the reasons why I’ve reduced positions in many of these companies prior to this week. The surge in demand in 2020 will create very tough comps for 2021. I think the market is taking this into account now.

The company noted that growth was strong along every customer segment, but especially among the government and education sector. Zoom executives said a “significant percentage” of recent usage came from the education sector, which will end up being a drag on growth once schools reopen. Growth will certainly slow (perhaps slow significantly) when we return to normal, but the company has made strategic moves to ensure it won’t be going anywhere. I remain bullish on the company, but it's hard to be bullish on the stock price (at least in the short term) after such a run-up.

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