The company also grew free cash flow by over 1,100% in fiscal year 2021 up to $1.4 billion. The significant climb in free cash flow was a result of superb revenue growth stemming from pandemic-driven demand. Zoom’s financials remain strong, but I think the company needs to improve future growth prospects to justify trading at current valuation multiples. With revenue and earnings growth expected to pull back in the years ahead, I wouldn’t be surprised to see growth-oriented investors exit their positions in Zoom stock. The slowdown in growth, combined with ongoing macroeconomic headwinds and geopolitical concerns, will put additional downward pressure on Zoom’s valuation for the foreseeable future.
About Zoom Video Communications Stock (NASDAQ:ZM)
Department of Justice-led panel, named Team Telecom, was investigating the proposed merger’s potential national the relationship between interest rates and bond prices security risks. The Motley Fool has positions in and recommends Bitcoin, Tesla, and Zoom Video Communications. Upgrade to MarketBeat All Access to add more stocks to your watchlist. 450 employees have rated Zoom Video Communications Chief Executive Officer Eric S. Yuan on Glassdoor.com.
With 2026 just two years away, Ark Invest’s base case estimates are looking increasingly unlikely to come to pass, and it may even fall short of the $700-per-share bear case estimate. Also, 3% revenue growth will probably not inspire growth-oriented investors. Zoom is a member of the information technology sector and operates within the software industry. They include legacy web-based meeting service providers such as Cisco Systems Inc.’s (CSCO) WebEx and LogMeIn Inc.’s GoToMeeting. Rivals also include bundled productivity solution providers with video functionality such as Alphabet Inc.’s (GOOGL) Google G Suite and Microsoft Inc.’s (MSFT) Microsoft Teams. Other competitors are unified communications as a service (UCaaS) and legacy private bank exchange (PBX) providers such as 8×8 Inc. (EGHT), Avaya Holdings Corp. (AVYA), and RingCentral Inc. (RNG).
Zoom Video Communications, Inc. provides unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company was formerly known as Zoom Communications, Inc. and changed its name Automated trading to Zoom Video Communications, Inc. in May 2012. The company was incorporated in 2011 and is headquartered in San Jose, California. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
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Eric S. Yuan has an approval rating of 97% among the company’s employees. This puts Eric S. Yuan in the top 30% of approval ratings compared to other CEOs of publicly-traded companies. Zoom Video Communications’ stock was trading at $71.91 at the beginning of the year. Since then, ZM stock has decreased by 6.9% and is now trading at $66.93. Click the link below and we’ll send you MarketBeat’s list of seven stocks and why their long-term outlooks are very promising.
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Zoom Video Communications’ top institutional investors include AQR Capital Management LLC (1.85%), Pacer Advisors Inc. (1.70%), Acadian Asset Management LLC (1.59%) and Sumitomo Mitsui Trust Holdings Inc. (1.21%). Insiders that own company stock include Santiago Subotovsky, Eric S Yuan, Velchamy Sankarlingam, Shane Crehan, Aparna Bawa, Jonathan Chadwick, Carl M Eschenbach, Ryan Azus and Kelly Steckelberg. Prior to founding Zoom, Yuan was corporate vice president of engineering at Cisco, and was a founding engineer and vice president of engineering for web and videoconferencing platform Webex. As mentioned above, on Sept. 30, 2021, Five9 announced that the two parties had mutually agreed to abandon the deal. 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.
Should investors buy Zoom stock?
Zoom’s valuation has surely contracted, but it’s still not desirable when observing the company’s peer group. Given the expected slowdown in Zoom’s growth, I think it’s safe to say that the company is still trading at expensive valuation multiples. New Rank-Based ScoringMarketRank™ is calculated by averaging available category scores (with extra weight given to analysis and valuation), then ranking the company’s weighted average against that of other companies.
Continuing the two-year comparisons, that number is up from Q3 2020, when international revenue was only 20% of total revenue. If Zoom can continue to grow internationally, it opens up plenty of new revenue opportunities. Because of this, it is helpful to take a look at Zoom’s performance as compared to 2019. After all, year-over-year comparisons in 2021 are facing some awfully tough comparisons to 2020, when demand was at its peak. The chart below compares Zoom’s Q3 of 2022 (ending Oct. 31, 2021) to the corresponding quarter two years ago.
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- This is more favorable than Zoom’s expected top-line scenario, but many investors still might be hesitant to pay a lofty valuation for the company when taking into account the deceleration in growth.
- Zoom’s management also views international expansion as an important opportunity.
- Zoom shares have lost over 60% of their value in the past six months as part of a broader tech sell-off in response to rising interest rates and inflation.
After growing parabolically in 2020, the stock has come crashing back to earth and is down 45% year to date at the time of this writing. This is especially stark when compared to the S&P 500, which is up 27% on the year. Admittedly, the company’s results have come nowhere close to matching that expected growth. In the first nine months of 2023, revenue of $3.4 billion increased by only 3% yearly. Ark Invest has backed estimates up by taking a significant position in the media stock.
As a long-term investor, I don’t ignore past performance, but I’m generally more interested in where the company is heading. Zoom has provided investors with spectacular growth and returns in the past couple of years; however, I don’t see that continuing into the future. The pullback in pandemic-driven demand, in addition to increased competition from massive tech companies like Microsoft and Alphabet, will challenge Zoom’s business moving from here on out. With growth expected to hit the breaks in the years ahead, the company will likely become less attractive to investors who bought into Zoom’s growth story. On the earnings front, Wall Street analysts are forecasting an average annualized growth of 28% over the next five years up to an earnings per share of $6.21 per share in fiscal year 2026. This is more favorable than Zoom’s expected top-line scenario, but many investors still might be hesitant to pay a lofty valuation for the company when taking into account the deceleration in growth.
For a company like Zoom that has been so tied in investors’ minds to the pandemic, it can be difficult to 3 types of crms and how to use them take a step back and see the forest for the trees. Taken without the noise of the past two years, Zoom is clearly a buy for existing shareholders or those investors looking to start a position. All successful companies find ways to keep expanding their business in order to create new revenue streams and remain relevant in an ever-changing world. In order to do this, businesses need the cash to invest in research and development and capital improvements. Zoom has the balance sheet to do this and has been very active in rolling out new products. By taking out of the equation the volatility of the past two years and viewing Zoom’s performance on this two-year basis, we see just how remarkable the growth of its business is.
Zoom shares have lost over 60% of their value in the past six months as part of a broader tech sell-off in response to rising interest rates and inflation. Revenue and earnings growth remain strong — analysts are forecasting revenue and earnings per share to grow by 54% and 46% year over year up to $4.1 billion and $4.87 per share in fiscal year 2022, respectively. Zoom has almost no debt, boasting a debt-to-equity ratio of 2% and a strong cash position of $1.3 billion.
Zoom even initiated new growth efforts, building out an artificial intelligence (AI)-driven communications ecosystem. Then there is the endorsement of Ark Investment Management’s CEO Cathie Wood, whose bold predictions regarding other tech stocks (like Tesla and Bitcoin) have come to pass. Wood and her team predicted a $1,500-per-share price target for Zoom by 2026, a 22-fold gain from current levels. Given the state of the company, investors should consider Zoom stock. Admittedly, investors like Ark Invest may have to adjust their expectations.
Zoom ended the last quarter with $5.4 billion in cash, cash equivalents, and marketable securities and only $97 million in debt. To that end, Zoom has recently introduced Zoom Phone, Zoom Meetings, Zoom Video Webinars, and Zoom for Home. Looking back at the last two years, there may be no stock more representative of the pandemic’s impact on the stock market than Zoom Video Communications (ZM -0.86%).