Citi Upgrades Zoom Communications (ZM.O) to Buy on Accelerating New Product Ramp
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Citi upgraded Zoom Communications Inc (ZM.O) from Neutral/High Risk to Buy, raising the target price from $94 to $106. The upgraded thesis is based on an attractive valuation of roughly 10 times next-twelve-month EV/FCF, supported by clearer growth catalysts that can sustain over 5% revenue growth.
Citi identifies multi-product growth driven primarily by Zoom Contact Center (ZCC) and enhanced AI monetization through Custom AI Companion. Bottom-up analysis indicates these two vectors will contribute a combined 250 basis points to growth in fiscal year 2027. Specifically, ZCC is projected to contribute 180 basis points, representing 42% of Citi's estimated net new FY27 revenue, with ZCC customer segments expected to grow 65% year-over-year. Meanwhile, Custom AI Companion should add roughly 70 basis points, driven by favorable reception among F200 clients and new SKU offerings.
Citi successfully defends Zoom against AI disintermediation risks, arguing that AI enhances the platform and reduces terminal value risk. Consequently, the bank raised its FY27 revenue forecast to 1 percentage point above market consensus and lifted EPS estimates by $0.19. The revised $106 target price applies 14 times EV/FY27E FCF, partially removing previous valuation discounts as AI monetization materializes. Citi projects FY27 revenue growth at approximately 4.3%, accelerating modestly through FY29.