Zoom Video (ZM) is expected to report results on its first quarter on Monday, May 22, with a conference call scheduled for 5:00 pm EDT. What to watch for:

UC GROWTH POTENTIAL: In a research note pre-earnings, Benchmark says it remains constructive on Zoom as it is positive on its long-term UC growth potential despite the current transitional lull with a particular headwind from macro sensitive non-enterprise customers. The firm also highlighted that Zoom is accelerating strategic activity in targeted technologies, including last week’s investment in Anthropic to support its research roadmap and steerable AI systems.

Earlier this month Zoom announced the Government of India has granted Zoom pan Indian licenses allowing it rollout Zoom Phone. Zoom Phone should have considerable appeal to the multitude of global corporations and businesses operating in India and in particular need of the most advanced cloud PBX service, Benchmark added. Zoom is now engaged with telecom providers in 47 countries. The firm reiterated a Buy rating on the shares with a price target of $95.

NEGATIVE CATALYST WATCH: Back in April, Citi opened a "90-day negative catalyst watch" on shares of Zoom Video Communications, while keeping a Sell rating on the shares with a $68 price target. The firm says negative data points are "piling up," which could further pressure the company's growth rates. Citi's recent chief investment office survey suggests an incremental de-prioritization of unified communications as a service spend and overall videoconferencing spending intentions "lacking growth," the firm tells investors in a research note. Beyond the survey data points, Zoom may face other challenges including rising competition, and web traffic data trends also suggest continued deterioration post January, contends Citi.

LIKELY BENEFICIARY: Zoom Video’s shares were in the spotlight last month after Financial Times reported that Microsoft (MSFT) has offered to stop forcing customers of its Office software to also have its Teams video conferencing and messaging app automatically installed on their devices to prevent an official antitrust probe by EU regulators.

Commenting on the news, Needham said it believes the company will be a likely beneficiary of Microsoft reportedly unbundling Teams from Office. The firm said that Teams has become a dominant enterprise collaboration platform, making the unbundling move increase its confidence that Zoom can achieve consensus growth of 5% in its fiscal 2025. Needham added that it still views the coming AI capabilities and seamless compatibility with Office as a major advantage for Microsoft.

OUTLOOK: During the company’s last earnings call in February, Zoom Video said it saw Q1 EPS of 96c-98c and revenue of $1.08B-$1.09B, with consensus currently at 99c and $1.08B, respectively. The company further said, "Total revenue is expected to be between $1.080 billion and $1.085 billion and revenue in constant currency is expected to be between $1.097 billion and $1.102 billion. Non-GAAP income from operations is expected to be between $374.0 million and $379.0 million. First quarter non-GAAP diluted EPS is expected to be between $0.96 and $0.98 with approximately 304 million non-GAAP weighted average shares outstanding."

For fiscal year 2024, Zoom said it saw EPS of $4.11-$4.18 and revenue of $4.46B-$4.46B, with consensus currently at $4.22 and $4.45B, respectively. The company added, "Total revenue is expected to be between $4.435 billion and $4.455 billion and revenue in constant currency is expected to be between $4.458 billion and $4.478 billion, Non-GAAP income from operations is expected to be between $1.606 billion and $1.626 billion. Full fiscal year non-GAAP diluted EPS is expected to be between $4.11 and $4.18 with approximately 309 million non-GAAP weighted average shares outstanding."

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