Zoom Video Communications Stock Analysis 2022
There is a widespread misconception that Zoom ($ZM) is a defunct high-flier whose business peaked during the epidemic.
While the company is down dramatically from its previous highs, we believe Zoom has market-beating potential at today's pricing, even with more modest top-line growth.
This video platform, however, is far more than users may know. It has a plan to rule the globe of unified communication. This platform-style firm is especially appealing to investors, who see how much of Zoom's income may fall to its bottom line, resulting in a successful and cash-generating corporate giant.
It's easy to point to Zoom's over 50% stock slide this year as justification for the timing of our proposal. Fortunately, in Zoom's case, the company is still firing on all cylinders.
Zoom's sales increased by 12% year on year, with business client growth exceeding 20%. Zoom trades at a trailing price-to-earnings ratio of roughly 21x and a price-to-free cash flow ratio of about 20x, both of which are historical lows for the company.
Even with reduced growth rates, we believe this might be a long-term bargain if Zoom can execute on its new efforts, such as its contact center, and deeper monetization of high-value consumers.
Customers spending $100,000 or more on Zoom's platform increased 46 percent year over year, due in part to an industry-leading net dollar growth rate of 123 percent. All of this is happening while Zoom's financial sheet contains roughly $6 billion in cash and short-term investments.
The most significant risk for investors to be aware of is Microsoft's (NASDAQ: MSFT) existential threat to Zoom.
Many businesses already pay for subscriptions to Microsoft Office, and most of them come with Microsoft Teams for no extra cost.
While Zoom excels at deepening ties with current clients, the company's development may be impeded if it is unable to persuade potential consumers of the merits of paying for Zoom over other, less expensive solutions. And, as investors are already aware, any further slowing in growth is likely to be accompanied by a drop in the share price.