If Zoom can start monetizing some of the AI potential Ark Invest sees, it could inspire another bull market in its stock. Zoom Video Communications (ZM) has recently been on Zacks.com’s list of the most searched stocks. The Zoom IPO in April 2019 raised $752 million, with shares priced at 36. Zoom Phone, a cloud-calling product rolled out in 2019, lets customers set up group internet phone calls without video.
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- Looking ahead, Zoom’s guidance for Q4 reflects a slowdown in growth, indicating ongoing challenges.
- However, these tailwinds driving growth for Zoom from 2020 to mid-2021 have eased away, putting pressure on the company as growth is hard to come by, competition is intensifying, and its financials did not align with its new growth profile.
- As Wood and others have stated, Zoom is much more than an online meeting platform.
- With the coronavirus emergency long over, the clock is ticking on Zoom Video Communications (ZM).
Is Zoom Video Stock Getting Too Cheap to Pass Up?
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.
Cathie Wood’s Ark Invest Seizes Tesla Dip, Acquires Over $17M in Shares Ahead Of Q1 Results — Zoom Stock Dumped
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 https://forexbroker-listing.com/beaxy/ 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.
Is Zoom Video A Buy As Microsoft Unbundles Teams, Office Tools?
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.
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%.
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.
Management remained cautious about committing to much higher infrastructure spending, and so the company has been able to avoid the type of intense cost cuts that characterized Meta Platform’s early 2023. The revenue challenge is compounded by another key challenge that I see and which relates to Zoom Video’s net retention rate, which has rather consistently declined in the last year as well. The company qualifies as an emerging growth company under the U.S. JOBS Act, which exempts management from certain SEC disclosure requirements. Furthermore, while hard to determine, some analysts believe Teams is about to reach $8 billion in revenue in 2023. This is up from $6.8 billion in 2020, when, of course, usage was much higher.
Zoom Video in early March said company President Greg Tomb, a former cloud computing executive at Alphabet’s (GOOGL) Google, will leave. Upgrade to MarketBeat All Access to add more stocks to your watchlist. The company is scheduled to release its next quarterly earnings announcement on Monday, May 27th 2024.
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 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.
And yet, Zoom has proven me wrong over these last few months, with the company rapidly rolling out new features and beating Microsoft and Cisco to the feat. As discussed earlier, the outlook for the videoconferencing industry is very solid, with growth at a CAGR of low-double digits. Yet, I did not expect Zoom to be able to fully benefit from this growth.
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 https://broker-review.org/ 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.
ZM has a descending triangle breakout pattern on its daily candlestick chart. The daily descending trendline formed at $70.60 on March 12, 2024. As shares approach the apex point, ZM is breaking down under the flat-bottom trendline. The daily market structure low (MSL) trigger forms a breakout through $60.75.
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.
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%.
In the fiscal year ending Jan. 31, 2019, Zoom recorded $330.52 million in revenue, resulting in net income of $7.58 million. That represents significant growth from the previous year’s revenue of $151.48 million and net loss of $3.82 million. Zoom’s marketing strategy includes a direct sales force and strategic partners, but the company said it also relies on organic introductions to new clients through existing clients hosting meetings. Last year, 55 percent of the firm’s $100,000 clients began with free discovery.
The one area of modest strength is non-GAAP (adjusted) free cash flow, which increased almost 14% yearly to more than $1.1 billion in the first three quarters of 2023. That was not enough to persuade investors to buy Zoom stock, as it is up just 1% from year-ago levels. Ark Invest has backed estimates up by taking a significant position in the media stock. Zoom makes up almost 7% of its flagship fund, the Ark Innovation ETF, making the Cathie Wood investment its fourth-largest holding.
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 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.
Today the stock trades at 13x forward earnings and ~7x EV/EBITDA–both figures represent all-time lows. The company posted its full-year 2023 (FY 2024 for the company) results in February, and they were good–the company grew top-line sales by 3% over the prior year, and grew EBIT from $1.57 billion to $1.77 billion, a 12% increase. Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing. Further, Zoom stock holds an IBD Composite Rating of 67 out of 99.
This is still a much higher price than it was trading at the same point last year. Here, Zoom makes a clear distinction between meeting packages and conferencing packages. A room in currently £39.00 per month per room, and works as an ideal solution for larger companies who regularly host conferences. It’s important for growth investors to see that the company’s operations are sustainable. In the trailing 12 months, Zoom has brought in more than $1.3 billion in free cash.
This suggests a possible upside of 25.5% from the stock’s current price. View analysts price targets for ZM or view top-rated stocks among Wall Street analysts. Zoom stock is valued at a discount that reflects some serious investor concerns about its growth prospects. Sure, enterprise clients are engaged with its platform and are renewing contracts at higher annual rates. But there are many competitors in this space also jockeying for market share. Some of them, like Microsoft, offer much more comprehensive solutions to clients.
They also provide management with the flexibility to invest in growth initiatives at a time when many rivals might be focused on cost cuts and restructuring. Zoom closed its fiscal third quarter with 219,700 enterprise customers, up 5% from the same period last year. Management has already indicated that it is not planning to leverage its significant cash position to buy back shares. Management is entirely focused on investing in the business and is likely to look at smaller tuck-in acquisitions and larger ones. The company’s AI companion, which is now available to paying users at no additional cost, is a differentiator to other AI assistants, with those of Microsoft and Google, both costing up to $30 per month.
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.
The U.S. government has been increasing its scrutiny of Zoom on several fronts. In 2020, the United States charged a China-based Zoom executive with conspiring to disrupt videoconference commemorations of the 1989 Tiananmen Square democracy protests. Zoom is also the focus of several ongoing federal investigations related to its dealings with Beijing, according to the Journal.
The company emerged as a winner from the COVID-19 pandemic, fully benefiting from the working-from-home trend and rapidly growing demand for videoconferencing tools. However, these tailwinds driving growth for Zoom from 2020 to mid-2021 have eased away, putting pressure on the company as growth is hard to come by, competition is intensifying, and its financials did not align with its new growth profile. Whereas the company fundamentally definitely had potential, I saw too many negatives and headwinds for it to get past to consider this a solid investment. Simply put, based on the current growth expectations and risks involved with accelerating growth, I believe investors should not be willing to pay much of a premium for this company, if anything at all.
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.
That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Zoom puts limits on the number of participants in a group call and the length of meetings. Zoom software gets high ratings for ease of use and simplicity following earlier video services that provided jerky images and out-of-sync audio. While Zoom Video Communications currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys. Zoom’s stock is trading at only 14 times its estimated future profits. Its product is proving to be resilient, even amid growing competition.
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.
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 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.
Across all Ark Invest funds, Zoom makes up around 4.5% of the company’s holdings. Rather than focusing on anything else, we at Zacks prioritize evaluating the change lexatrade review in a company’s earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
Zoom Video Communications (ZM 1.25%) has given investors some frustration in recent years. The stock price is down more than 80% since the start of 2021, back when the coronavirus pandemic was still in many people’s minds and “social distancing” was still a key phrase. Investors who have held on to the stock since the start of the pandemic likely lost all or most of the impressive gains the stock saw in 2020. But to date, there’s little evidence to show that Zoom can dominate in the enterprise market at anything approaching the level that it once did in the consumer niche.
The good news here for shareholder is that they can expect a return of this free cash flow as the company announced a $1.5B Class A common stock buyback yesterday. Although Zoom Video gave no timetable for its stock buyback, the company could return almost all of this year’s FCF to shareholders. At a current share price of $68, the buyback could allow Zoom Video to repurchase about ~7% of its outstanding shares. For the next fiscal year, the consensus earnings estimate of $4.96 indicates a change of +1.3% from what Zoom Video is expected to report a year ago.
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.
Still, considering weakness, this is a strong gross margin performance. This has been one of the key reasons why Microsoft has reported faster user growth in recent quarters and years. At the end of 2021, Microsoft reported 270 million users of its Teams platform, growing to 300 million by the end of 2022 and 320 million as of the most recent financial report. This includes over 1 million organizations and 91% of the Fortune 100.
