By June 2020, the value of the company was $67 billion. Zoom Video Engagement Center allows customers to connect with an expert, whether online or offline. The stock's price-to-sales ratio shot as high as 120, making Zoom one of the most expensive stocks on the market at the time. It only makes sense that as pandemic lockdowns eased and Zoom's temporary surge in growth faded, investors would begin to cool on the stock. In my opinion, Wall Street analysts are underestimating Zooms growth potential. Job applicants will be looking for remote working options, more than ever, which forces employers to provide such perks if they want to attract the right talents. This is justified because out of the 29 Wall Street analysts that have rated the stock, 13 rated it Hold. Zooms success has been overshadowed by a decline in profitability and cash flow, analysts warn. And both are engaged with each other in a cost-benefit war. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Zoom's best growth opportunity is catering to individuals and very small businesses who want simplicity of use, in my view. Sep 1, 2020. And I believe the key determinant of success is whether the quality of the app ecosystem commands the surcharge businesses will pay to keep Zoom's technology around. Some enterprise Zoom clients have on-premise deployments, which may allow Zoom some vendor lock-in, but I estimate these clients make up less than 5% of Zoom's revenue (20% of Zoom's 2021FY revenue is from 1,644 annual contracts of $100,000+; assume 25% have on-premise deployments). 4 Social Security Changes Joe Biden Wants to Make: Is 2023 the Year They Become Reality? Cash richness and stock price depression may also likely call for management to announce a buyback program. Visit a quote page and your recently viewed tickers will be displayed here. As COVID-19 strongly accelerated Catalysts. The stock is The stock thus enjoyed immense investor attention. The stock is currently trading 45.4% below its 52-week high of $588.84. Zoom Video Communications ( ZM -4.03%) was one of the market's favorite stocks during 2020 and the start of the pandemic. Im 68, my husband is terminally ill, and his $3 million estate will go to his son. In addition, a steep slowdown in growth, rising competition from tech giants, and the reopening of the economy contributed to Zoom's underperformance. With electrified mobility considered the future, many more automakers are releasing electric models. However, the stock has been quite volatile over the past few months in-part because investors have been weighing the effects of new coronavirus spikes in some parts of the world versus positive vaccine news. Since she was young, Manisha has had a strong interest in the stock market. Given Zooms growth potential and market leadership position, it seems that Zoom is fairly valued, although overall market sentiment on growth stocks may further weigh down on the stock. Zoom's unit economics are great, and it is encouraging to see them free cash flow positive at such an early stage in their public existence. Zoom Video Communications, Inc. (ZM) quickly became a household name last year thanks to remote working and learning trends adopted amid the COVID-19 pandemic. And we offer the software layer. Zoom must remember it is now part of the competition for business productivity ecosystems, not just videoconferencing tools. Part of this softening individual and small business metric could in part be blamed on the easing of the pandemic, but it's also a function of Zoom's focus on large enterprises. As of March 2021, Zoom's 54% global market share by search volume is over double that of Google Meets/Hangouts (combined 23%) and Microsoft Teams/Skype (combined 21%). I wrote this article myself, and it expresses my own opinions. Zoom now has a market cap of about $120 billion By Trefis Team Contributor. Heres how CEO, Eric Yuan responded: First of all, we like metaverse because our team already worked on that for a while. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. However, the selloff may likely continue, especially when the company announces Q4 earnings where management expects little to no sequential growth the markets may punish the stock for the lack of growth for a company trading at EV / Sales of 12x+. As such, remote working is here to stay and teleconferencing tools such as Zoom will remain relevant for probably the rest of eternity. Zoom is expected to report earnings of $0.07/share on $176.36 million in revenue. I have no business relationship with any company whose stock is mentioned in this article. Small business and individual subscribers in particular are causing this slowdown. Please disable your ad-blocker and refresh. A sector-derived rather than company-specific discount rate of 10.4% is applied; Zoom's rapid share price growth during the pandemic has pushed its 2-year raw beta to 0.19, which is too abnormal for a reasonable discount rate in the current macro environment. Fast forward to the last two quarters, revenue only grew by a meager 54% and 35% in Q2 FY2022 and Q3 FY2022, respectively. A day after reporting quarterly earnings that underwhelmed investors, Zooms stock fell over 15% to under $82 per share, adding to already significant losses so far this year. Instead, it was Q3 guidance for sales to be as high as $1.02 billion, up 31% from a year ago but flat on a sequential basis with Q2. SPX, And metaverse will play a big role for our future innovation. I'll briefly discuss three growth catalysts. Zoom Video was a major beneficiary of the pandemic, with the stock skyrocketing 415% from when it closed at $110.30 on March 11, 2020, the day the World Health Organization declared the pandemic, to the Oct. 19, 2020 record close of $568.34, before falling sharply as COVID restrictions were gradually lifted. and AR/VR is a part of that. This trade will be most favourable for investors who (1) look to protect themselves against a prolonged downturn due to more challenging interest rate environments, and (2) share my high conviction in Microsoft and Google's ability to consolidate firms' technology spend into their ecosystems. Zoom risks being priced out of the market if Microsoft and Google continue choosing to offer their videoconferencing technology on top of existing services at no extra cost; many enterprise customers will regard this as a freebie, rather than an attempted cross-sell. Where Zoom may still have an edge is in offering a plug and play videoconferencing solution for individuals and very small businesses. That implies nearly 50% VSB revenue churn annually. Neither seems likely at this stage. In terms of forward P/S ratio, the stocks 24.74x is 501.9% higher than the industry average 4.11x. Based on the analysis presented in this article, ARKs price target for Zoom is $1,500 per share in 2026. Though videoconferencing isn't (quite) the same absolute necessity it was early in the pandemic, many investors are forgetting about the pending acquisition of Five9 (FIVN -0.24%) and all it means for Zoom's aspirations for the business world. With or without Five9, Zoom Video Engagement Center should be a growth driver for Zoom as this solution is applicable for the sales and customer service department across many industries. But we are not going to offer a hardware platform. Please. Zoom ( ZM ) suffered from a case of the company not being able to win for losing. Zoom Video Communication's revenue worldwide from fiscal year 2019 to 2022 (in million U.S. dollars) Premium Statistic. Heres Why That Wont Happen Anytime Soon In The U.S. Minneapolis Officer Who Kneeled On George Floyds Back Sentenced To 3.5 Years In Prison, Juul To Pay $1.2 Billion To Settle Youth-Vaping Lawsuits, Manatee Cousins, Coral And Abalone Among 10% Of Marine Life At Risk Of Extinction, World Cup Shocker: Croatia Knocks Out Favorite Brazil Even As Neymar Ties Pels Goal Record, Americans Have Lost $6.8 Trillion This Year As Stocks Crashed, Housing Market Collapsed And Savings Dwindled, Netflix Is Now The Worst-Performing Stock In The S&P 500 As Shares Plunge Over 60% In 2022, Dow Falls Over 600 Points As Experts Warn Bear Market Rally Is Grinding To A Halt. Do we need professional help. Businesses with 10+ employees are more likely to find a cost-benefit in continuing to license each staff member upon return to the office, whereas VSBs might pay for one license between many staff members, or make use of Zoom's free plan instead. Customers with 10 or fewer employees represented 36% of revenue, compared to the high of 38% during Q3 (last summer and early autumn). It could work in the comfort of your homes or even in brick-and-mortar retailers. The videoconferencing platform missed on revenue, which came in at $1.10 billionshort of the $1.12 analysts were hoping for. Zoom Video Communications Inc., maker of the ubiquitous videoconferencing tool that made a global pandemic less isolating, just reported another quarter of explosive growth. (Source: Zoomtopia Investor Presentation). Analysts at Citi similarly slashed their outlook for Zoom shares to a sell rating from neutral as the company faces increased competition, while also warning about economic pressures on small and medium-size businesses who use the product. You can see how Zoom saw astronomical growth starting in Q1 FY2021 with a 169% YoY growth followed by three consecutive quarters of 350%+ growth. In early 2020, businesses rushing to establish an effective work-from-home environment embraced Zoom's timely offering of 40 minutes free videoconferencing for up to 100 users. Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions.Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. ZM is ranked #41 of 77 stocks in the Technology Services industry. Web Conferencing market share table. According to Frost & Sullivan, there are 464 million desktop phones. In fact, the management has already shown its shareholder friendliness, despite having IPO-ed only 3 years ago. In particular, I see much slower enterprise adoption and somewhat slower VSB adoption than street consensus. This month, a lawmaker from Russias ruling party. Zoom has 14 office locations in 10 different countries. November 29, 2022 04:01 PM. Zoom became a verb last year but its popularity and demand for its services could decline as the economy reopens and several pandemic-related restrictions are gradually lifted. Another thing that disturbed investors is the soft guidance provided by management. After surging over 400% in 2020 as business turned to videoconferencing services during stay-at-home mandates amid the pandemic, Zooms stock has since struggled, falling roughly 45% in 2021 and now down more than 55% so far in 2022. Cisco WebEx has market share of 0.97% in online-meetings market. Fortunate timing and disruptive videoconferencing architecture jived perfectly with a viral market in which existing users formed the best sales channel, in my opinion. However, given the fluid nature of the videoconferencing market and their competitors aggressive pricing, Zoom must continue to innovate to retain its customer base. Note that all my single-stock research follows a similar format. Using geographically dispersed data centres, they connect meeting participants using an individual adaptive-resolution video stream for each person. has lost 17.1%. Gaslighters have two signature moves: Are you being gaslighted at work? Price as of December 9, 2022, 4:00 p.m. I have no business relationship with any company whose stock is mentioned in this article. Also, major tech companies are now offering similar services. That said, dont count Zoom out just yet. My investment strategy revolves around finding what I call "divergent stocks" disruptive companies that have strong fundamentals and long growth runways, but depressing prices.I also recently launched my YouTube Channel (I'm not a natural speaker but I'll get better over time!). The demand for video Among these categories, ZM has a C grade for Momentum. I forecast all three financial statements until FY2024E, before shifting to a growth rates approach until FY2032E. Not only are Meets and Teams similarly easy to use, but they come pre-integrated into their respective business productivity ecosystems. *Average returns of all recommendations since inception. The sudden deceleration in growth caught investors by surprise which caused the stock to plummet (which was trading at nosebleed valuations in the first place). The company has a fortress balance sheet with no debt and $5.4 billion of cash position. Of course, the future of the metaverse is still unknown. Zoom generated $4 billion revenue in 2021, a 53% increase year-on-year. What are the top industries that use Cisco WebEx? Zoom also recorded its 14th consecutive quarter of net dollar expansion rate greater than 130%. Globally, Zoom handles about 300 million daily meeting participants. The company also announced new benefits and an expansion to its Master Agent Referral Partner Program in March. Furthermore, Zoom will find it difficult to innovate a competitive advantage from its current position without control over user hardware, or successful development of a much more powerful unified collaboration ecosystem. Barring a disruptive new form of video communication, Google (GOOG) and Microsoft (MSFT) will continue to bear down on Zoom's market share with their ecosystem-driven offerings and their greatly improved platforms. The phrase "it just works" cropped up repeatedly in reference to Zoom. Learn More. Zoom is among the worst-performing stocks in the tech-heavy Nasdaq Composite index, which is down 21% this year in comparison. The addition of Five9 will help the company continue its fast expansion. Do I need professional help? Other pandemic-era darlingssuch as Peloton, Teladoc and Rokuhave similarly struggled, all losing more than 60% so far in 2022. Because that fits very well to our vision. A day after reporting quarterly earnings that underwhelmed investors, Zooms stock fell over 15% to under $82 per share, adding to already significant losses so far this year. Given these factors, Zoom's current price reflects an overly bullish earnings momentum consensus. Zoom Video Communications ( ZM 6.02%) was one of the market's favorite stocks during 2020 and the start of the pandemic. "Zooming" became commonplace, and the company saw a staggering acceleration in growth throughout 2020 that pushed the stock price to almost $600 per share. Now the pendulum on the stock has swung in the opposite direction. ", "Zoom sees continued growth in enterprise offsetting the online segment amid continued adaptation to hybrid work norms," Panigrahi said. Zoom reported it grew during the pandemic from 10 million daily meeting participants to over 300 million. Moreover, the relatively frictionless process of switching videoconferencing providers reduces Zoom's first mover advantage. September 22, 2021. How big it gets is still unpredictable. Zoom focuses on the software component while being hardware-agnostic, meaning it is compatible with many legacy desk phones, such as those provided by Cisco (CSCO) and Oracle (ORCL). Customer account growth was also lackluster, which is a leading indicator of revenue growth. I cover wealth management, money and markets. Google Meets fared no better, having been built on similar cloud-based open-source web architecture WebRTC in 2011. Zooms market leadership is However, Five9 stock has fallen about 40% from all-time highs and is now valued at about $8.8 billion so there might be a chance for both companies to revive the merger deal. Revenue has been broken out into VSB and non-VSB customer cohorts to clearly account for this thesis discrepancy. Stay-at-home orders and social distancing restrictions put teleconferencing technologies to the test as employees were ordered to work from home. To be clear, I think Zoom is a fantastic company. Invest better with The Motley Fool. Join. We are going to double down on that. As we all know, Zoom benefitted immensely from the pandemic lockdowns, turning the company into a household name and a verb. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. Q4 revenue is expected to be between $1.051 billion and $1.053 billion, essentially flat from Q3. "Zooming" became commonplace, and the But that progress has been overshadowed by high-single-digit declines in the companys online business, as well as continued pressure in emerging markets, the analysts led by Matt VanVliet wrote on Tuesday. Zoom has market share of 5.02% in online-meetings market. And in April 2021, an $100mn Apps venture fund was announced to stimulate investment in Zoom's app ecosystem. Please disable your ad-blocker and refresh. So, the question is, will ZM be able to regain its momentum this year?. Our bear and bull cases suggest that Zoom could be worth ~$700 and ~$2,000 per share in 2026, respectively. Zoom was one of the fastest growing apps of the pandemic; meeting participants increased by It's primary cloud competitors are Microsoft Teams Voice, Google Voice and Cisco (CSCO) Webex Calling. Slowing Down of Pandemic-Related Expansion. Shares of videoconferencing darling Zoom Video Communications ( ZM -0.97%) crashed after guidance for the second half of this year failed to impress investors. Revenue growth guidance may not have been what was hoped for in the balance of 2021, but Zoom's momentum is unlikely to stall out for long, if at all. As a novel offering, there is little doubt Zoom Phone will grow rapidly over the next couple of years. Learn how to effectively skim through my articles in this blog post. Moreover, the company's consistent track record in innovation and pivoting shows management's prowess in leading the company towards a brighter future. New data from S&P Global Mobility indicates that Tesla is losing U.S. market share to more affordable electric vehicles. Though they don't specify, I view this increase as driven by VSBs, which suggests a struggle to retain smaller businesses as multi-license paying customers. Thursday afternoon, Amazon and Apple are on tap. In my view, Zoom was in the right place at the right time in 2020. The Motley Fool has a disclosure policy. In Q2, management guided Q3 revenue to be between $1.015 billion and $1.020 billion. Furthermore, Zoom is highly profitable with a pristine balance sheet, characteristics that are favorable to capitalize on growth opportunities in Zoom Phone, Zoom Video Engagement Center, and the metaverse. I wrote this article myself, and it expresses my own opinions. Assuming 2.5 million total Zoom Phone seats sold as of Q3 FY2022, Zoom Phone only has 0.5% market penetration. In their 2021Q4 earnings call, they guided higher churn rates into FY2022. The deal made sense given how synergistic the acquisition could be, but Five9 shareholders wanted a higher premium. Zoom posted 54% growth in Q2, but forecast a slowdown to just 31% year-over-year growth in Q3. How we got to the highest inflation in 40 years. to see ZMs ratings for Stability, Growth, and Quality as well. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. Netflix Is Now The Worst-Performing Stock In The S&P 500 As Shares Plunge Over 60% In 2022 (Forbes), Dow Falls Over 600 Points As Experts Warn Bear Market Rally Is Grinding To A Halt (Forbes), This is a BETA experience. Please disable your ad-blocker and refresh. ) The pandemic forced the global workforce into the greatest experiment in remote working in all of history. As men and women spent countless hours on Zoom and other video-conferencing platforms during the pandemic, they couldnt escape the camera and began researching facial cosmetic enhancement services. Lastly, videoconferencing solutions generally don't have any structural vendor lock-in. I am not receiving compensation for it (other than from Seeking Alpha). Im 56 and plan to retire at 62. Zoom only grew customers with more than 10 employees by 18% YoY to 512,100 customers. sank 1.0% in afternoon trading Tuesday, putting them on track to suffer the longest losing streak in 18 months. to access 24 top-rated stocks in the same industry. The major concern is that Zoom's headline partners (Asana (ASAN), Slack (WORK) and HubSpot (HUBS)), will continue to provide a more useful integration with Microsoft 365 and Google Workspace because they can access their entire communication and file storage ecosystem, rather than just a videoconferencing and chat app. Cost basis and return based on previous market day close. Yet both Teams and Meets integrate far better with their own ecosystems that Zoom. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. On Monday, Zoom reported slower growth than in past In my view, videoconferencing technology is now more constrained by each user's hardware than the underlying software. You can follow him on Twitter @TomiKilgore. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. My goal is to help you find the companies of tomorrow.I am a long-term growth investor in search of innovative companies that make the world a better place. After surging over 400% in 2020 as business turned to videoconferencing services during stay-at-home mandates amid the pandemic, Zooms stock has since struggled, falling roughly 45% in 2021 and now down more than 55% so far in 2022. The top alternatives for Cisco WebEx online-meetings tool are G Suite with 82.36%, Microsoft Office 365 with 7.86%, Zoom with 5.02% market share. Also, the stocks forward EV/sales of 23.66x is higher than the industry average 4.30x. The number of Zoom users spending at least $100,000 a year was up 131% from a year ago in Q2. But my view is not even that these extra bonus features will necessarily have a huge sway on Zoom's customer base; in many cases less is more. Of course, peers such as Google Meet (GOOG) and Microsoft Teams (MSFT) saw massive growth as well. There is no vital data which would present a challenge to migrate, and no specific learning curve to give up. Speaking on a conference call on Monday, Zoom Chief Financial Officer Kelly Steckelberg acknowledged some of the issues the company expects to face in the coming year. The stock has a C grade for Sentiment also. Customers with more than $100,000 in trailing 12 months revenue were up 94% YoY to 2,507. Heres how to recognize the signs. A deep analysis of incumbent technology and the competitive landscape suggests investors are overlooking the pricing, feature and architectural advantages made by Zoom's largest competitors during 2020. Investors may be fretting about the near-term outlook for Zoom's revenue as it laps its peak pandemic boom, but this is an enduring growth story. The phrase "it just works" cropped up repeatedly in reference to Zoom. 36% of Zoom's FY2021 revenue was attributable to businesses with less than 10 employees. According to Bloomberg, the metaverse may be an $800 billion market. I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. To see all exchange delays and terms of use, please see disclaimer. ) That would be the longest stretch of losses since the nine-day stretch ending May 6, 2021 when it fell 13.0%. In my view, Zoom is being caught in the crossfire of a heavily subsidised Google vs. Microsoft ecosystem war. Login In terms of forward non-GAAP price/earnings ratio, ZMs 85.67x is 225.1% higher than the industry average 26.35x. Zoom Phone is a cloud-based phone system solution launched in January 2019. The nine-year-old apps (Zoom) market crossed $140 billion in October 2020, surpassing Exxon Mobile, which was 130 years old. 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