Morgan Stanley: Zoom's key business has not yet achieved a re-acceleration, maintaining a "hold" rating

According to Zhitong Finance APP, Zoom (ZM.US) announced its first-quarter results for the fiscal year 2026 last week. Morgan Stanley stated in its research report that, as the bank previously expected, Zoom continues to make positive progress in Contact Center as a Service (CCaaS) and AI products. The price increases in its online business offset some macro uncertainties and exchange rate impacts on enterprise customers. However, the company's key business has not yet achieved a re-acceleration—this is a key catalyst that Morgan Stanley believes could drive a revaluation of the stock price, thus the bank maintains a "hold" rating on the stock, raising the target price from $79 to $85.

The financial report shows that Zoom's first-quarter revenue was $1.1747 billion, slightly above the bank's forecast of $1.1561 billion. The revenue beat expectations was mainly driven by enterprise business (revenue grew 5.9% year-on-year), while the online business was basically in line with expectations, but the churn rate was slightly better than expected. The NON-GAAP earnings per share were $1.43, better than the bank's forecast of $1.28. The NON-GAAP gross margin was 79.2%, about 40 basis points higher than the bank's forecast. The NON-GAAP operating margin was 39.8%, 170 basis points higher than the bank's forecast.

Morgan Stanley stated that Zoom's first-quarter revenue was slightly above expectations, and there was substantial positive transmission in earnings (especially due to the impact of stock buybacks). Additionally, new products showed encouraging performance. Channel development began to drive transactions—about 70% of contact center deals and 50% of phone deals came from channel partners. The company's free cash flow is strong, and its financial flexibility is robust. However, the lengthening transaction cycles for some enterprise customers, combined with exchange rate factors, weakened the positive impact of the better-than-expected performance and price increases in the online business.

Morgan Stanley said it maintains a "hold" rating on Zoom primarily because of uncertainty regarding whether the company can achieve the business re-acceleration that both it and investors are focused on. The bank slightly raised its performance expectations for the company for the fiscal year 2026 after Zoom announced its first-quarter financial results, but this was mainly compared to the forecasts lowered in mid-April due to macro factors. The bank expects Zoom's second-quarter revenue/NON-GAAP earnings per share to be $1.1973 billion/$1.36 (previously expected to be $1.1499 billion/$1.29); it expects full-year revenue/NON-GAAP earnings per share for fiscal year 2026 to be $4.8063 billion/$5.58 (previously expected to be $4.6382 billion/$5.21).

Morgan Stanley stated that it raised its target price for Zoom to $85, with valuations in bull and bear scenarios at $103 and $62, respectively. The bank noted that while new products and price increases in the online business provide support, the lengthening enterprise sales cycle and macro pressures still pose adverse factors. The bank pointed out that the risks facing its target price include: macro uncertainties potentially suppressing small and medium-sized enterprise business; limited success in upselling expanded product suites; a stronger dollar; and intensified competition from larger competitors