Why Zoom Video Shares Are Trading Higher Today

With these features, Zoom users can expect to “feel like they are in the same room as their colleagues and customers” without the need for anything but the Vision Pro. Heading into today, shares of the video-conferencing company had lost 5.8% over the past month, lagging the Computer and Technology sector’s gain of 4.99% and the S&P 500’s gain of 2.5% in that time. For more coverage of undervalued growth stocks, including my top picks, consider subscribing to Best of Breed. I follow countless companies and select for you the most attractive investments. So, the question that investors need to get comfortable with is this, does it make sense to pay around 12x to 14x forward PE for a company that is delivering approximately mid-single-digit EPS growth? Earnestly, I do believe Zoom could grow by 5% CAGR in the coming year.

1. Due to the presence of equity-based compensation, ZM earned an even greater free cash flow amount of $455 million, which helped bolster its now $5.1 billion cash hoard.
2. Buying shares on exchanges is a long-term investment since you stand to gain only if prices go up, unlike trading through CFDs.
3. Shares currently have an IBD Relative Strength Rating of 50 out of a best-possible 99.
4. This was despite the videoconferencing industry outlook actually looking really decent.
5. Zoom is also the focus of several ongoing federal investigations related to its dealings with Beijing, according to the Journal.
6. Therefore, I remain neutral on this name, as I’ve been for a while.

Over the same time frame, O’Neil notes, the Dow Jones Industrial Average showed an average ratio of 15 times trailing 12-month earnings. Zoom investors’ eyes glaze over as the once-booming platform presents a disappointing future. The resilient gross margin, combined with cost efficiencies and some one-off benefits, allowed Zoom to improve the operating margin to 39.3%, up 470 basis points YoY. This resulted in a non-GAAP operating income of $447 million, up 17% YoY. For perspective, as of 2023, 12.7% of full-time employees still work from home, while 28.2% work a hybrid model. Furthermore, 98% of workers want to work remotely at least some of the time.

Investing in Zoom Stock (ZM)

You can buy the company’s shares live on exchanges (it is currently listed on Nasdaq) or you can trade them through derivatives solutions, such as CFDs. Buying shares on exchanges is a long-term investment since you stand to gain only if prices go up, unlike trading through CFDs. Zoom Video Communications, Inc. operates a video communications platform connecting people from all over the world through video, voice chat and content sharing. The company was established in 2011 and is headquartered in San Jose, California, United States. Our research reveals that these estimate alterations are directly linked with the stock price performance in the near future.

Investors are fruitlessly hoping that a bad connection is the cause of the earnings report they heard on Monday as Zoom tries (and fails, for now) to maintain its pandemic success. For the October quarter, Zoom Video earned an adjusted $1.29 a share, up 21% from a year earlier. Eric Yuan, Zoom’s chief executive and founder, came to the U.S. in 1997. He started out with WebEx Communications and eventually became its vice president of engineering.

Zoom: Not Zooming Anywhere

The Zoom app for Vision Pro is meant to blur the lines of in-person and remote meetings to help teams feel more connected with one another. This means buying into cheap companies at the moment when their narrative is changing and the business is on a path toward becoming significantly more profitable over the next year. Furthermore, as discussed higher up, it’s difficult for Zoom to grow its topline by 5% CAGR, when its customer adoption curve is starting to moderate towards the mid-single digits. Supported by world-class markets data from Dow Jones and FactSet, and partnering with Automated Insights, MarketWatch Automation brings you the latest, most pertinent content at record speed and with unparalleled accuracy. According to Glassdoor, an employer evaluation portal, Zoom Video Communications was placed #2 in Glassdoor’s Best Place to Work in the large company category in 2019.

SWOT Analysis for Zoom Video Communications

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. However, this does not mean all weaknesses have disappeared, with the company still losing market share and continuously diluting its shareholders. Including SBC, the company can still barely report a profit with a GAAP net income margin of just 10%, which raises concerns. 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.

If you think that its share prices will go up, you can open a long position (BUY). If you think prices will decrease, you can open a short position (SELL). Because I can’t see any reason to increase neither my forward revenue estimates nor my assumptions for profitability, I cannot rate ZM a buy, as 5.9% isn’t the type of return that warrants bullishness. Unlike many other fast-growing tech companies, ZM is GAAP profitable and earned $316.9 million in net income for $1.04 in earnings per share. Excluding non-cash investment gains, ZM earned $284.8 million in net income or $0.93 in earnings per share. This represents a net margin of 27.9%, which is fantastic considering that ZM has only been a public company for just over 2 years.

It also adds the $24 billion contact center opportunity to its addressable market. Management has previously pegged the sum of virtual events, telephony, and unified communications at $67 billion. But if sales and profits keep rising, investors looking for cheap stocks should eventually pick up the baton from those who held shares because sales were growing so fast. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.

Finally, this results in an EPS estimate of $4.93 to $4.95, up 13% and far above my $4.20 estimate from the start of the year. With the coronavirus emergency long over, the clock is ticking on Zoom Video Communications (ZM). A rebound in revenue growth for Zoom stock depends on its success in the corporate market.

Management demonstrated it can rapidly adapt

If we look at Zoom’s 2-year stack, we see that its CAGR is growing at approximately 5%. But also, we have to keep in mind that Zoom’s fiscal 2025 (starting in February 2024), is up against a substantially easier comparable period relative to this year, when Zoom reported low mid-single digits. Zoom Video Communications (ZM -2.26%) rewarded shareholders who bought the stock prior to the pandemic, returning 391% in 2020. The company was a clear beneficiary of the work-from-home environment, a trend that is still very evident today. Bureau of Labor statistics released in January, 11% of workers were still teleworking as of December 2021.

That’s a strong growth rate, but it is a steep deceleration from the 191% YOY growth rates posted in the first quarter and the 326% growth rate posted last year. This deceleration was to be expected, however, as ZM was lapping quarters benefitted by the pandemic. 54% is still a respectable growth rate and it was driven by both customer growth and strong net dollar expansion rate of above 130% for https://bigbostrade.com/ the trailing twelve months. This should result in fiscal FY24 revenue of $4.506 billion to $4.511 billion, up slightly from management’s prior expectations and up 3% at the midpoint. Furthermore, the gross margin is expected to be approximately 80% for the entire year, and operating income in the range of $1.74 billion to $1.745 billion, representing an operating margin of approximately 39%.

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 what is mirror trading 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.