Zoom Video: Why I Maintain My Sell Rating NASDAQ:ZM

what is zoom trading at

Without considering a stock’s valuation, no investment decision can be efficient. In predicting a stock’s future price performance, it’s crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company’s growth prospects. 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. A Zoom Room is the physical hardware setup that lets companies launch Zoom Meetings from their conference rooms. Zoom Rooms are a software-defined video conferencing hardware system for a conference room that allow users to schedule, launch, and run Zoom Meetings with the push of a button.

Should You Buy Zoom Stock Today?

The company is headquartered in San Jose, Calif., and has additional offices in more than 15 locations in the United States, Europe, Asia, and Australia. The facts discussed here and much other information on Zacks.com might help determine whether or not it’s worthwhile paying attention to the market buzz about Zoom Video. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term. Zoom Video is graded C on this front, indicating that it is trading at par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

How Zoom’s business could stabilize after the pandemic

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. Zoom is currently trading at an overvalued rate, with its 12-month-trailing P/E ratio​​ approximately 444x times its EPS. However, if the company keeps building upon its financial results and gains market share in the video conferencing industry, it could result in a promising future for the relatively new company. Financially, Zoom has outperformed expectations in 2023, showing resilience in revenue and achieving better-than-expected growth.

Zoom Video Communications Analyst Data

The Zoom IPO in April 2019 raised $752 million, with shares priced at 36. Zoom Video aims to be a player in the contact center market with its own products and services. In July 2021, Zoom Video and Five9 (FIVN), which automates call center services, announced a deal to merge. Also, Zoom morphed into a social phenomenon as making video calls became routine for consumers to keep in touch with family and friends. Remote learning and needs in telemedicine also boosted demand for Zoom Video’s cloud-based services.

ZM price to earnings (PE)

Today, Zoom is trading at 31.6 times earnings, whereas top competitors like Cisco (CSCO -0.20%), Microsoft (MSFT 2.51%), and Alphabet (GOOGL 9.81%) (GOOG 9.57%) are trading at price-to-earnings multiples of 20, 31, and 24, respectively. 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. Demand for collaboration tools, such as Zoom has hit a new high following the coronavirus pandemic. Most company’s employees are working from home and there is limited contact between businesses dealing with one another.

Furthermore, Shopify offers a broad range of e-commerce platforms, including Shopify Plus for large enterprises, Shopify Lite for smaller businesses, and Shopify POS for in-person sales. This diverse range of platforms accommodates businesses of various sizes and operating models. In addition to CRM and platform services, Salesforce also offers a suite of marketing and commerce services. These services enable businesses to create personalized marketing campaigns, track customer behavior and interactions, and deliver targeted content and offers. The analytics solutions provided by Salesforce help businesses gain valuable insights from their data, uncover patterns and trends, and make informed decisions. Growth investing is a strategy that targets companies expected to grow their earnings and revenue at a rate above the market average, typically in emerging sectors or industries.

  1. Zoom enables users to virtually interact with contacts when a physical meeting is not possible, such as if you work remotely.
  2. 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.
  3. Management further guides for an operating margin of around 36.5%, up 30 basis points YoY.
  4. Zoom Video in early March said company President Greg Tomb, a former cloud computing executive at Alphabet’s (GOOGL) Google, will leave.
  5. As a result, the AI functionalities have seen great adoption in the first three months since the release, with over 200,000 accounts enabling it and 2.8 million meeting summaries having been created by the assistant.

A “Zoom Meeting” refers to a videoconferencing session hosted on its cloud infrastructure. Paid Zoom business plans cost $15 or $20 per employee and require minimums of 10 or 50 seats. Rather than increase revenue, Zoom Video expects gen AI tools to retain and add customers. When you’re in your meeting, click Manage Participants in the Zoom toolbar.

It’s almost impossible for a company to grow its earnings without growing its revenue for long periods. For the current fiscal year, the consensus earnings estimate of $4.89 points to a change of -6.1% from the prior year. For the current quarter, Zoom Video is expected to post earnings of $1.19 per share, indicating a change of +2.6% from the year-ago quarter. To make the decision even easier, Zoom is trading at or near its low for price-to-earnings (P/E) and price-to-sales (P/S) ratios. Whereas during the pandemic the case could be made that the company’s valuation got ahead of itself, it’s clear now that the valuation is more in line with, if not underestimating, Zoom’s fundamentals.

When you’re ready to un-mute yourself, you can save yourself a click by pressing and holding the space key if you need to chime in for a brief second. Once you’re in a Zoom meeting, you can use features like turning your video and microphone settings on and off, inviting other meeting participants, chatting with other meeting participants, recording the meeting, and sharing your screen. Zoom meetings are the foundation of Zoom, and the term refers to video conferencing meetings using the platform that allows remote and co-located meeting attendees to communicate frictionlessly. Since you don’t need to have a Zoom account to attend a Zoom meeting, anyone can meet with clients or conduct interviews with remote candidates virtually. Using these straightforward tips, you can find growth stocks that may offer good returns over time.

A rebound in revenue growth for Zoom stock depends on its success in the corporate market. And the outlook for ZM stock is tied to whether the company morphs into a broader business communications platform. Additionally, Shopify provides various add-on products that further enhance the functionality and performance of businesses’ online stores. These add-ons include Shopify Apps, which enable businesses to integrate third-party services and improve the customer experience. At the heart of Salesforce’s offerings is its CRM technology, which helps businesses manage their interactions with customers throughout the entire customer lifecycle.

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 1.20%). 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.

what is zoom trading at

If your business sets up Zoom Rooms, you can sync those rooms to your company’s shared calendar so employees can see which meeting rooms are available when they go to book. Zoom Rooms can also be set up to display upcoming meetings so employees are cognizant of when they need to start wrapping up or when they can sit down in a drop-in meeting. A “Zoom Meeting” simply refers to a meeting that’s hosted using Zoom, and attendees can join the meeting in-person, via webcam or video conferencing camera, or via phone.

Yet, the company reported SBC expenses of $1.3 billion in FY23, resulting in it only barely making a GAAP profit. Shopify is a renowned growth stock in the e-commerce industry, known for providing subscription and merchant solutions. The company offers a wide range of platforms for businesses of all sizes to establish and expand their online presence. There is one caveat worth mentioning — Zoom’s growth in the coming years is expected to let up significantly from current levels. As the pandemic unwinds and Zoom becomes a more mature company, it’s inevitable that sales growth will come down from its all-time highs.

Furthermore, shares are up just 2.5% since I last covered these in April, underperforming the SP500 index significantly as this one is up 14.5% over the same period. Despite an upgrade in financial estimates, the stock’s current valuation, trading https://forex-review.net/bitstamp-review/ at 14.5x this year’s earnings, does not present a compelling investment case. With an outlook of mid-single digits CAGR for revenue and low-single digits for EPS, coupled with the prevailing risks, the risk/reward profile appears unfavorable.

Analysts are forecasting Zoom’s revenue to come in at $7.7 billion in fiscal year 2026, indicating an average annualized growth of 13% from 2022 estimates. Double-digit revenue growth for the next five years surely isn’t bad, but it doesn’t compare to the company’s 160% compound annual growth rate over the past three years. 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. Management further guides for an operating margin of around 36.5%, up 30 basis points YoY. The company has outperformed my expectations in terms of development, allowing for some careful optimism in my eyes.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors’ interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. In terms of market position, Zoom has established itself as a dominant player in the video conferencing industry.

View analysts price targets for ZM or view top-rated stocks among Wall Street analysts. Zoom is one of the most popular video conferencing software systems on the market because of its easy-to-use feature set and affordable pricing. According https://forexbroker-listing.com/ to Zoom’s S-1 filing in early 2019, more than half of Fortune 500 companies are using Zoom, and it earned an average NPS of more than 70 in 2018. Today, Zoom software powers over 500,000 companies’ meetings on a daily basis.

what is zoom trading at

The Zacks Industry Rank assesses the vigor of our specific industry groups by computing the average Zacks Rank of the individual stocks incorporated in the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1. Zoom Video Communications ZM closed bitbuy review the most recent trading day at $61.04, moving -0.99% from the previous trading session. Meanwhile, the Dow experienced a drop of 0.98%, and the technology-dominated Nasdaq saw a decrease of 0.64%. For the full year, Zoom expects its revenue to increase 51% and for its adjusted EPS to rise 42%-43%.

While the overall videoconferencing market is projected to experience low-double-digit growth, Zoom’s market share, sitting at an impressive 55%, appears increasingly vulnerable. The emergence of formidable competitors, particularly Microsoft Teams (MSFT), equipped with advanced AI capabilities and seamless integration, has eroded Zoom’s once-dominant position. While a commendable effort, the company’s attempts to enter the productivity market with Zoom Docs may face challenges against established players like Microsoft Office and Google Docs (GOOG) (GOOGL). 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.

Zoom Phone was called out on the most recent earnings call as having triple-digit year-over-year revenue growth, showing these new initiatives are starting to pay off. Its rise to prominence and the resulting performance were tied to a massive need for video communications at the height of lockdowns. This demand pulled forward a ton of growth and warped some investors’ views of the company’s fundamentals. For fiscal 2025, Zoom said it expects earnings of $4.86 per share at the midpoint of its outlook vs. estimates of $4.66 per share. The company said it expects revenue of roughly $4.6 billion vs. estimates of $4.637 billion.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing. Also, Zoom Video has forged new deals in the enterprise market, such as one with software maker ServiceNow (NOW). Yuan then became Cisco’s corporate vice president of engineering for collaboration software. Zoom Video in early March said company President Greg Tomb, a former cloud computing executive at Alphabet’s (GOOGL) Google, will leave. In May, Zoom announced an investment in AI startup Anthropic to support research roadmaps.

Moreover, PayPal’s merchant network extends to over 35 million across the globe, enabling businesses of all sizes to effortlessly accept payments online, in-store, and across various platforms. However, it’s important to balance your portfolio with both growth and value stocks. These risks include high expectations from investors — if a company doesn’t live up to the hype, its stock price may drop sharply. Moreover, rising interest rates can also negatively affect growth stocks by increasing their borrowing costs, which might slow down their growth. Alpha is the extra return an investment earns over a benchmark, and growth stocks are well-known for their ability to surpass market averages due to their rapid earnings expansion.

Zoom’s operating margins are expanding as its scale improves and its data center capacity rises. Zoom is still generating healthy growth on top of its triple-digit percentage revenue growth last year, but the market’s reaction indicates investors are still worried about its post-pandemic growth. Zoom’s stock was also trading at 73 times forward earnings and 26 times this year’s sales prior to its earnings report, and those high valuations indicated it needed to hit a grand slam — not just a home run — to rally higher. 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. Clearly, the company is operating in a challenging environment and struggling to grow revenue and earnings. Whereas we have seen many technology stock prices skyrocket so far in 2023, Zoom stock is up just 7% YTD.

I use my professional background in probability, statistics, risk analysis, uncertainty, pattern recognition, coding and charting to help fellow traders get the most out of online trading software and tools. In terms of valuation, Zoom Video Communications is currently trading at a Forward P/E ratio of 12.6. This valuation marks a discount compared to its industry’s average Forward P/E of 28.45. Zoom video communication’s stock made its debut on the NASDAQ under the ticker ‘ZM’ on Thursday the 18th of April 2019.

Today, the share price has come down to around $70 per share as investors realized that the COVID-19 tailwinds boosting growth for Zoom were not here to stay, resulting in a somewhat weak growth outlook for the company. And this is reflected in its FY23 results and FY24 outlook with growth of just 7% and 1%, respectively. The company seems to have entered a mature stage in which growth is expected to remain in the mid-single digits and management should focus on profitability and its shareholders.

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