Zoom Video Communications Inc. ZM lost a bit of the zoom in its growth trajectory in the third quarter, spooking investors. Sell-side analysts said the company's communications story remains strong, though the stock price may already reflect it.

The Analysts

Morgan Stanley's Meta Marshall kept an Equal-Weight rating on the stock with a $75 price target.

Credit Suisse Analyst Brad Zelnick remained Neutral and lowered the target price from $90 to $80.

Baird analyst William Power reiterated an Outperform rating, but with a target price lowered from $100 to $85.

KeyBanc's Alex Kurtz kept a Sector Weight rating on the stock.

The Theses

Zoom Video reported third-quarter EPS of 9 cents, beating the Street's 3-cent estimate, while sales of $166.6 million beat the $154.8 million Street estimate.

While Zoom's 85% year-over-year growth rate in the third quarter sounds pretty good, analysts had expected something closer to 90%. Still, Marshall said the stock price could continue to rise on continued traction in the upmarket segment of video conferencing, leading sales efficiency and the early traction the company is seeing with its new Zoom Phone system.

Zelnick liked the momentum with Zoom Meetings and opportunity for Zoom Phone and Zoom Rooms, but said the price is too high.

"We remain Neutral, due to ZM’s premium valuation, high embedded expectations, and increasing (customer acquisition cost) as the company expands into Zoom Phone," Zelnick wrote.

Best In Coverage Group

Marshall said Zoom has the best qualitative business in Morgan Stanley's unified communications coverage group, with strong margin potential and a good macro environment, all things reinforced by the company's third-quarter print.

But he's remaining Equal-Weight on the premise that share value builds in that appreciation on the market as well.

"If there was an overcorrection in the market from an expectation shortfall, we could become more positive, particularly in early FY21 as Zoom Phone international features become more robust, meaning Phone could become a stronger growth driver," Marshall wrote.

Other Reactions:

Zoom Growth Accelerants Ahead

Zoom Video's revenue was short of the previous two quarters, driving weakness in the stock, said Baird's Power. But, the "combination of growth and profitability stand out from the crowd."

Bottom line for KeyBanc's Kurtz: the success of Zoom is built into the stock price. He noted Zoom is trading at a 36% premium to growth peers. He also said that while Zoom Phone could be a long-term growth opportunity, he expects "little impact" in the near term.

Price Action

Investors weren't very forgiving despite the beat, selling the stock off even after the sales and earnings beat.

Zoom Video's stock fell 10.6% to $62.53 per share at the time of publication.