Zoom Stock: bull against bear
Focus on video communications (NASDAQ: ZM) has been one of the biggest winners from the pandemic as its video conferencing product has become an essential utility during the crisis. But after its share price surge in 2020, the stock fell back to earth, down nearly 70% from its all-time high, which came shortly before the announcement of effective vaccines against the disease. COVID-19.
After this price pullback, the question remains whether the stock can rebound after a rough 2021 or if it continues to lag the market as investors appear to forge ahead. Read on to see what a Zoom Bull and Zoom Bear think about the stock right now.
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Bullish catch: Vast potential beyond the pandemic
Jeff Santoro: The stock market often moves with the news, as Zoom has proven, its price rising and falling with each piece of reporting related to the pandemic. However, smart investors who look past the headlines will see a company with tremendous growth and a lot of irons in the fire to move beyond its core video conferencing business.
It’s easy for investors to get distracted by the bigger numbers that show income growth has slowed in recent quarters. But trying to compare Zoom’s financial performance to quarters when demand was at its peak due to the pandemic isn’t really helpful. Instead, using a two-year comparison, we see that Zoom’s revenue growth was 531%, its net income increased by 15,322%, and free cash flow increased by 585%. Zoom also increased its number of clients with 10 or more employees by 591% and its number of clients contributing over $ 100,000 in revenue by 359%. Looking only at these performance metrics, it would be difficult to do anything but a bull case for Zoom.
It is also important to understand Zoom’s investments in future growth opportunities. Not content to rest on its laurels, Zoom is using the cash generated by the core business of videoconferencing to invest in other areas that it considers important to its future success. Zoom Phone, Zoom Meetings, Zoom Video Webinars, and Zoom for Home are just a few of the products that extend Zoom’s reach. The most promising to date is the Zoom phone, which saw triple-digit percentage revenue growth in the last quarter. Zoom is the perfect example of how headlines published each quarter can affect the performance of a stock in a way that doesn’t necessarily reflect the performance of the company. But there’s a lot of growth ahead for Zoom, and at the very least, the pullback in its price presents an attractive entry point for investors.
Bearish take: years of growth have been pushed forward
Jérémy Bowman: There are a lot of reasons to love Zoom. The company performed efficiently during a difficult time. Its CEO has a compelling origin story and is a top leader on Glassdoor, and the company is very profitable. But the action has faded over the past year, alongside other popular pandemic picks such as Interactive Platoon and Teladoc, seems to reflect a reality that has slowly imposed itself on investors: these companies, in particular Zoom, have advanced years of growth.
Before the pandemic, Zoom was a fast growing company but still a niche product. Today, Zoom has become mainstream, a part of the everyday life of millions of people, and a verb – things that would not have been possible, or at least not for several years, without the change brought about by the pandemic. In other words, it will be difficult for the business to grow at a rapid rate as it has already entered a large part of its available market. For example, Zoom already has more than 500,000 customers with more than 10 employees. In comparison, there are only about 1.5 million businesses in the United States with 10 employees, and many of them, such as restaurants or cleaning services, will never need any software. videoconferencing.
Wall Street seems to recognize this, especially after Zoom said its income growth would slow to reaching teens in the current quarter. The average analyst calls for revenue growth of just 16% next year and sees earnings per share drop as the company begins a new round of investing. The stock may look cheap with a price-to-earnings ratio close to 40 based on this year’s expected earnings, but this reflects a much more normalized growth path over the next few years, which makes sense after the boom in Last year.
Expect Zoom’s stock to continue to be sensitive to developments with the coronavirus over the coming months, particularly with omicron fears creeping into the market. Given the relationship between the action and the pandemic news, it could still be several quarters before the action is judged purely on its business outlook and we are seeing results that are unaffected by COVID- 19.
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Jeff Santoro owns Peloton Interactive, Teladoc Health and Zoom Video Communications. Jeremy Bowman is the owner of Teladoc Health and Zoom Video Communications. The Motley Fool owns and recommends Peloton Interactive, Teladoc Health and Zoom Video Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.