Zoom (ZM) stock jumped 9% on increased earnings and a $1 billion human windfall

TLDR

• Zoom stock jumped more than 9% after beating first-quarter fiscal 2027 earnings expectations
• Revenue reached $1.24 billion, up 5.5% year over year, with enterprise revenue growing 7.2%
• Zoom’s $51 million investment in Anthropic as of 2023 is worth approximately $1.3 billion
• Management raised full-year guidance, forecasting revenue of $5.08-$5.09 billion and up to $6.00 per adjusted EPS.
• Several Wall Street analysts raised their price targets, with Rosenblatt rising to $130 and the benchmark to $125.

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Zoom stock opened sharply higher on Friday, rising more than 9% to about $105.55, after the company posted a strong first quarter and quietly revealed a massive return on its early bet on Anthropic.

Zoom Communications, ZM

The numbers were clean across the board. Revenue was $1.24 billion, up 5.5% year over year, and comfortably above Zoom’s own guidance of $1.22 billion. Adjusted earnings were $1.55 per share, up from $1.43 a year ago. Free cash flow increased 8% to $500.5 million.

Enterprise revenues grew 7.2% to $755.7 million and now represent 61% of total revenues. The number of customers spending more than $100,000 annually rose 8.2% to 4,534.

The net expansion rate in dollars rose to 99% from 98%, indicating that existing customers are spending a little more.

CEO Eric Yuan pointed to artificial intelligence as the driver behind the momentum. The number of paid AI Companion users increased 184% year over year. My Notes, a new AI-powered note-taking feature, reached 1.5 million licensed users within four months of its launch.

“Customers are increasingly relying on Zoom as an AI-first working system for modern work,” Yuan said.

Anthropic factor

The earnings story got its second chapter on Friday when a regulatory filing revealed the full scope of Zoom’s humanitarian investment.

Zoom has committed nearly $51 million Anthropic in May 2023 through its Zoom Ventures arm. That stake is now worth nearly $1.3 billion — a return of more than $1 billion. The original investment was structured to help integrate Anthropic’s Claude models into Zoom’s AI products.

Anthropic is reportedly close to closing a new funding round of up to $30 billion at a valuation of $900 billion, with Sequoia Capital, Dragoneer, Altimeter, and Greenoaks each expected to contribute $2 billion. If this valuation holds, Zoom’s stake could be worth more.

If Anthropic’s ownership, valued at $1.5 billion of Zoom’s total investment of $1.88 billion, reaches the $900 billion valuation level, Zoom stock could be worth $116 per share, Cantor Fitzgerald noted.

Guidance and analyst reaction

Management raised full-year guidance. Zoom in It now expects revenue of $5.08 to $5.09 billion, adjusted earnings per share of $5.96 to $6.00, and free cash flow of $1.7 billion for fiscal 2027.

The company also authorized a new $1 billion stock buyback program.

Analysts moved quickly. Morgan Stanley raised its target to $105 from $92. Rosenblatt went for $130 from $115. Benchmark raised its target to $125 from $121. Mizuho moved to $120, and Needham also raised to $130. BofA went to $105 while maintaining a neutral rating.

Cantor Fitzgerald, who maintained a Neutral rating, raised his target to $104 from $87, citing adoption of Zoom’s CX, phone and… Artificial intelligence products.

Zoom has a 52-week high of $113.73, which was reached during Friday’s session.