It will also validate its recent moves to pour money into expanding the platform portfolio, including through acquisitions. Demand is strong among enterprises seeking efficient and productive communication services and flexibility for remote work. The enterprise division grew at a double-digit rate last quarter while Zoom’s online, consumer-focused segment shrank by 4%.
- Sales growth slowed for the ninth-straight quarter as the company adjusts to slower product demand in the post-coronavirus emergency era.
- On April 18, 2024, Rosenblatt Securities upgraded shares of Zoom Communications to a Buy from Neutral with a $75 price target.
- At its annual Zoomtopia user conference in early October, the company said it will not charge customers for use of its AI Companion.
- Annual operating cash flow is holding relatively stable at nearly $1.5 billion.
- As Zoom’s revenue growth slowed, the company saw its margins shrink and eventually its bottom line fell into the red.
- Since this point, Zoom’s share price dropped slightly and is currently on a downtrend, trading for approximately £330 as of March 2021.
Companies Mentioned in This Article
Zoom has invested in AI start-up Anthropic in an effort to boost its AI offerings. The company is leveraging Anthropic’s large language model, known as Claude, across its platform, including its call center and the company’s AI companion. I must admit that Zoom’s fast roll-out of AI functionalities has impressed me as the company, in several areas, seems to outpace the competition with these innovations, adding to the attractiveness of the Zoom platform. The company will introduce the program in 2024 to go up against Microsoft Office and Google Docs. As of Aug. 23, 2021, Zoom had 240,744,533 outstanding shares of Class A common stock and 56,383,369 outstanding shares of Class B common stock. As mentioned above, on Sept. 30, 2021, Five9 announced that the two parties had mutually agreed to abandon the deal.
Cathie Wood’s Ark Empire Bleeds As Investor Outflows Spike: ‘The Loyal Shareholders Have Become Frustrated’
Still, the bear estimate calls for a $700-per-share or less stock price, amounting to more than a 10-fold gain from current levels if that price target holds. And yet the business performed solidly throughout the past few years even as the stock fell. Zoom Video reported revenues of $1.15 billion in the last reported quarter, representing a year-over-year coinbase exchange review change of +2.6%. Moving on, a startling picture emerges when we view the company’s core ability to generate cash from its business operations–EBIT–against the stock price. Throughout this time, earnings estimates have continued to move up, driving down forward valuations. Zoom’s cloud-based software sets up video calls, with chat tools available.
Should you buy the stock?
This research shows that the remote working trend is here to stay and may only increase going forward, which bodes well for Zoom as demand for its platform will remain and most likely grow over time. On a positive note, Zoom has surprised observers with its rapid deployment of AI functionalities, outpacing competitors like Cisco (CSCO) and Microsoft. The company’s investments in AI, notably through the partnership https://forex-reviews.org/ with Anthropic, have led to the successful integration of AI features like the Zoom AI companion, Zoom Phone, and Zoom Contact Center. These innovations, coupled with the positive adoption rates, enhance Zoom’s value proposition and potentially mitigate some of the challenges it faces. However, Zoom has rapidly turned into a value stock that returns a respectable level of free-cash-flow growth.
Zoom Video – An industry leader facing challenges
The fact that the stock is suffering from a massive post-hype hangover could be, in some ways an opportunity. There was a time when tech companies pushed the upper limits of valuations despite making no money or even, in some cases, losing money. Even today in a higher interest rate environment multiple cases of thinly or negatively profitable tech firms with sky-high valuations abound. Zoom earnings for the quarter ending Jan. 31 were 1.42 per share on an adjusted basis, up 16% from a year earlier.
These trends combined to create a 5% sales uptick in fiscal Q2, but the enterprise segment will increasingly drive overall results. Founded in 2011, the video and audio platform facilitates webinars, conferencing, content sharing and chat for remote organizations. The product suite of Zoom Meetings, Zoom Rooms and Zoom Phone integrates with third-party applications and runs on a cloud platform through a proprietary multimedia router. The risk/reward profile remains unfavorable for investors, especially as interest rates remain high. At the current time, I believe there are much better opportunities available on the market, and I expect Zoom to keep underperforming over the next 12 months. Even if I maintain my 15x fair value multiple, the slightly higher EPS expectations only allow for a minor target price increase to $73 per share, based on my FY25 EPS projection.
As Zoom’s revenue growth slowed, the company saw its margins shrink and eventually its bottom line fell into the red. But as the company cut costs and worked on efficiencies, it returned to profitability, reporting positive earnings in each of its three most recent quarters. Given the company’s actual performance over that time, it appears overly punitive for Zoom stock to fall to pre-pandemic levels. Here’s why this stock is a no-brainer buy at the valuation it’s trading for. A decline in Zoom’s value shouldn’t have come as a huge surprise to investors given that a return to normal would mean less of a need for video-based communications. Plus, competitors like Microsoft (MSFT 2.50%) launched products like Teams and made it easier for users to find alternative videoconferencing options, which chipped away at Zoom’s dominance.
By accumulating free cash, Zoom can put it to work and potentially pursue acquisitions and growth opportunities. It’s when a business is not growing and not generating free cash that investors should be worried. As someone who has used both Zoom and Teams (and knows how frustrating the latter can be), I understand why Zoom still has a following. Even though Zoom might cost users more, it’s the easier, smoother, and better videoconferencing application. This is further corroborated by Zoom’s high net promoter score of 62, which beats the tech average of 58, and is higher than Microsoft, which has a score of 45. These resources help protect investors worried about big financial losses.
Besides the spike of users from coronavirus, many companies are becoming more remote. This ‘remote working revolution’ will require effective video conferencing software, such as Zoom to contribute to the revolution. Zoom Video Communications (ZM), the video-conferencing company has seen major price increases since the Coronavirus outbreak. Is the company’s stock value https://forex-review.net/ifc-review/ a reflection of the businesses promising growth? For Q4, management has guided revenue to be in the range of $1.125 billion to $1.13 billion, up just 1% at the midpoint of the range, indicating that growth continues to slow down. However, management has been very conservative in its guidance over recent quarters, so these estimates probably have some upside.
After the pandemic, however, Zoom Video’s growth has cratered significantly and the firm only achieved a disappointing top line growth rate of 2.6% year over year in its most recent quarter. Enterprise revenues, which are derived from the largest customers on the Zoom platform, grew 5% to $667M, but overall Zoom Video’s revenue growth has been a major disappointment. While I am in favor of this strategy on many occasions, I am not sure in this situation as it leaves investors highly exposed to the significant levels of SBC. Furthermore, as a result, GAAP EPS remained much lower at just $0.45, indicating that SBC continues to take up 66% of non-GAAP net income, which is significant. YTD, this increases further to 70% of non-GAAP net income, with SBC of $813 million. Overall, SBC will be down slightly from fiscal FY23 levels but remain elevated.
Zoom is currently trading at an overvalued rate, with its 12-month-trailing P/E ratio approximately 444x times its EPS. However, if the company keeps building upon its financial results and gains market share in the video conferencing industry, it could result in a promising future for the relatively new company. Despite an upgrade in financial estimates, the stock’s current valuation, trading at 14.5x this year’s earnings, does not present a compelling investment case.
As the company’s stock price has fallen, its forward EBIT estimates continued to climb. Zoom stock analysts had projected earnings of $1.15 a share on sales of $1.13 billion. Sales growth slowed for the ninth-straight quarter as the company adjusts to slower product demand in the post-coronavirus emergency era. Also, Zoom morphed into a social phenomenon as making video calls became routine for consumers to keep in touch with family and friends.
This is despite the fact that Zoom is, in fact, one of the companies that could significantly benefit from the AI boom and has actually shown quite some promising developments over recent months. I must admit that the company has done better financially and fundamentally in terms of development than I anticipated in April. However, this does not mean that crucial issues have entirely disappeared.
The company said that the agreement had not received the required number of votes from Five9 shareholders to approve the merger. Earlier in September, The Wall Street Journal reported that a U.S. Department of Justice-led panel, named Team Telecom, was investigating the proposed merger’s potential national security risks. Meetings on the platform can host as many as 1,000 participants, while webinars can scale up to as many as 50,000. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Compared to the Zacks Consensus Estimate of $1.13 billion, the reported revenues represent a surprise of +1.57%.
Zoom Video Communications, Inc. provides unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. It serves individuals; and education, entertainment/media, enterprise infrastructure, finance, government, healthcare, manufacturing, non-profit/not for profit and social impact, retail/consumer products, and software/Internet industries. The company was formerly known as Zoom Communications, Inc. and changed its name to Zoom Video Communications, Inc. in May 2012. The company was incorporated in 2011 and is headquartered in San Jose, California. Furthermore, whereas Zoom operated the best platform during the pandemic, focusing on simplicity and meeting features, competition has caught up, resulting in a weakening moat for Zoom. I have increased both my revenue and EPS estimates through the company’s fiscal FY27.
Still, Zoom continues to face a slowdown in the underlying industry, mainly driven by a slowdown in growth in the enterprise segment, which was up just 8% in Q3, down from 24% growth in fiscal FY23. This reflects the depressed IT spending we currently see among enterprises and does not surprise me. This was further highlighted by a weakening net retention rate, which came in at 105% in Q3, down from a 115% level in fiscal FY23, reflecting a lower demand environment. Furthermore, despite my overall negative view so far, Zoom has also positively surprised me over the last eight months in terms of feature developments and the integration of AI functionalities in particular. In my April article, I explained how I expected Zoom to fall behind the competition on this front as it has to compete with big tech peers like Cisco and Microsoft with superior financial resources and much more experience in AI.
Microsoft (MSFT) and its Teams communications tools are Zoom’s major rival in the business market. In addition, Microsoft is upgrading its products with artificial intelligence technology from startup OpenAI. Zoom Video Communications’ stock is owned by a variety of retail and institutional investors. Top institutional shareholders include Sumitomo Mitsui Trust Holdings Inc. (1.59%), Assenagon Asset Management S.A.
One way or another, it is safe to say that Microsoft continues to close the gap and is gaining on Zoom. Apart from the first-mover advantage and the fact that enterprises are unlikely to switch platforms due to costs, Zoom has had very little going for it. The platform is in no way unique, which is confirmed by Gartner’s research, which gives both Zoom and Microsoft Teams very similar ratings and places on its magic quadrant.
Zoom Video reported January-quarter earnings and revenue that topped estimates and announced a $1.5 billion buyback of its own shares. MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… It’s evident that people are making fewer Zoom calls for social engagements, but the markets care more about whether normalization has concluded and growth resumes in the enterprise business segment. Investors are left to wonder if Zoom shares are getting too cheap to pass up.
Most company’s employees are working from home and there is limited contact between businesses dealing with one another. A combination of these factors and the likelihood of social distancing lasting throughout 2022 could boost Zoom’s revenue accordingly. For example, a multinational enterprise (MNE) that wishes to sign up to zoom may choose their enterprise package, starting at £15.99 per month for a minimum of 100 hosts – resulting in a total minimum cost of £1,599 per month.
A P/S ratio of 3.0X would be more appropriate, considering that the company is not seeing any real top line growth anymore and that it is struggling with its NDER measure. A fair value P/S ratio of 3.0X implies a fair value, for me, of about $50. At this point, I would consider revisiting Zoom Video and potentially buying the shares.
Steckelberg commented, “And by the way, now with the advent of AI, like one of the features that you’re going to get with Zoom AI companion is call summaries. So, if you’re having a phone call, you can get a summary of that just like you can get a meeting summary. That innovation that’s going to happen with AI is not going to be happening with those on-prem providers. Demand for collaboration tools, such as Zoom has hit a new high following the coronavirus pandemic.
For the current and next fiscal years, $4.6 billion and $4.78 billion estimates indicate +1.6% and +3.8% changes, respectively. Even though a company’s earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It’s almost impossible for a company to grow its earnings without growing its revenue for long periods.
