- Zoom (ZM) stock forecast: Bargain opportunity or slippery slope?
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Zoom Video Communications, Inc. (ZM) Stock Historical Prices & Data - Yahoo Finance.Should I buy Zoom Video Communications (ZM) - Zacks
A check on Android PlayStore confirmed that the ZM apps are well regarded, garnering at least 4 stars. Source: Google Play Store. The company has a whole suite of products that they can upsell to their existing customers, to encourage them to upgrade to more premium offerings, including additional optional products that can be purchased as add-ons. This is useful for smaller businesses owners who may not want to subscribe to the enterprise account but they want services for ad hoc events.
Or there are services that companies can consider adding on after testing zoom for a while. And customers are biting. All the above demonstrates that customers are happy with the products and services, products which the company is continuously striving to improve, expand and enhance.
Zoom is also acquiring businesses with the potential to value-add their existing products, such as the Kites GMBH's Machine Translation Technology that can help "break down language barriers and making seamless cross-language interaction a reality of everyday life".
I can imagine having a video conference with someone who cannot speak in English but thanks to almost instantaneous and accurate translation of speech-to-text displayed as closed captions, we can still understand each other. ZM market dominance creates a network effect that forces their competitors like Google Workspace and Microsoft Teams to integrate ZM API into their own video conference interface in order to communicate with their clients who use Zoom.
Thus, instead of replacing ZM, competitors have to "use" ZM. Source: Zoom App Marketplace. Zoom is in great financial state. ZM has several hundred million users, and has decided to expand into getting advertising revenue from its free account users. With its dominant position both in the US as well as globally, this is the next natural step to take.
This is huge, in my opinion. There are many successful companies that adopted a freemium business model to attract users, and after amassing a huge following, start selling advertisements. Facebook, YouTube, Google are among the most profitable businesses on earth that used this model.
ZM is starting this new revenue stream from a place of strength - it is already a cash flow positive and a consistently profitable company. Its only revenue stream now is centered around its subscription service and that is already highly profitable with gross profit margin of Once this new stream of revenue from advertisement enters its books, ZM will no longer be just a web conferencing platform but also a company that sell advertisements.
The additional revenue growth from the advertising business will go a long way to make up for the forecasted decline in EPS growth. After all, with growth expected to decrease in , is ZM still a "growth" company that warrants a premium valuation? I will try to value ZM in three ways. This is the first of my back-of-the-napkin, quick-and-dirty valuation approach. I believe that starting a small position in ZM, say one-tenth the total amount you intend to invest in ZM at the current price is fine.
This shows that Zoom's profitability is accelerating as revenue is now outrunning the company's costs. The stock market can be irrational and stock traders are prone to overreact to things.
Zoom's stock was definitely overpriced at its peak, but the momentum has swung so far the other way that the stock is now arguably a bargain. The stock price has now fallen to pre-COVID valuation levels, despite the business's continued growth. Its price-to-earnings ratio of 34 is less than that of a consumer goods company like Nike , despite growing EPS at a triple-digit percentage rate.
It's becoming harder to ignore Zoom based on the current valuation and substantial numbers it's put up. If there is a worry for investors, it's probably competition with Microsoft. Microsoft is much larger than Zoom, making it a formidable competitor with deep pockets.
Zoom, of course, competes with Microsoft Teams , which is a crucial cog in Microsoft's grip on the enterprise market. Investors will want to monitor Zoom's revenue growth and management's comments on customer account growth to ensure that Zoom competes well.
I think that there's room for more than one winner in such a large market, but if Zoom starts losing so much business that its growth begins declining, investors might reconsider their stance on the stock.
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Zacks Premium - The way to access to the Zacks Rank. As an investor, you want to buy srocks with the highest probability of success. This is also referred to as the cash yield. Like the earnings yield, which shows the anticipated yield or return on a stock based on the earnings and the price paid, the cash yield does the same, but with cash being the numerator instead of earnings. Many investors prefer EV to just Market Cap as a better way to determine the value of a company.
That means these items are added back into the net income to produce this earnings number. Since there is a fair amount of discretion in what's included and not included in the 'ITDA' portion of this calculation, it is considered a non-GAAP metric. Conventional wisdom says that a PEG ratio of 1 or less is considered good at par or undervalued to its growth rate.
A value greater than 1, in general, is not as good overvalued to its growth rate. So the PEG ratio tells you what you're paying for each unit of earnings growth. Book value is defined as total assets minus liabilities, preferred stocks, and intangible assets. In short, this is how much a company is worth. Investors use this metric to determine how a company's stock price stacks up to its intrinsic value.
Note; companies will typically sell for more than their book value in much the same way that a company will sell at a multiple of its earnings. So, as with other valuation metrics, it's a good idea to compare it to its relevant industry.
It's another great way to determine whether a company is undervalued or overvalued with the denominator being cash flow. A value under 20 is generally considered good. Our testing substantiates this with the optimum range for price performance between It is the most commonly used metric for determining a company's value relative to its earnings. At the end of the fourth quarter of fiscal year , Zoom had:.
Beginning with the first quarter of fiscal year , Zoom will no longer present the number of customers with more than 10 employees and the trailing month net dollar expansion rate for customers with more than 10 employees. Financial Outlook: Zoom is providing the following guidance for its first quarter of fiscal year and its full fiscal year Additional information on Zoom's reported results, including a reconciliation of the non-GAAP results to their most comparable GAAP measures, is included in the financial tables below.
A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future, although it is important to note that these factors could be material to Zoom's results computed in accordance with GAAP.
The program will expire in February The timing and the amount of any repurchased Class A common stock will be determined by Zoom's management based on its evaluation of market conditions and other factors. The repurchase program will be funded using Zoom's working capital. Any repurchased shares of Class A common stock will be retired. Zoom will host a Zoom Video Webinar for investors on February 28, at p. About Zoom Zoom is for you. Zoom is a space where you can connect to others, share ideas, make plans, and build toward a future limited only by your imagination.
Our frictionless communications platform is the only one that started with video as its foundation, and we have set the standard for innovation ever since. That is why we are an intuitive, scalable, and secure choice for large enterprises, small businesses, and individuals alike. Visit zoom. Zoom assumes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by law. Zoom defines non-GAAP income from operations as income from operations excluding stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock, acquisition-related expenses, and litigation settlements, net.
Zoom excludes the amount of employer payroll taxes related to employee stock plans, which is a cash expense, in order for investors to see the full effect that excluding stock-based compensation expense had on Zoom's operating results.
In particular, this expense is dependent on the price of our common stock and other factors that are beyond our control and do not correlate to the operation of the business. Zoom views acquisition-related expenses when applicable, such as amortization of acquired intangible assets, transaction costs, and acquisition-related retention payments that are directly related to business combinations as events that are not necessarily reflective of operational performance during a period.
Zoom excludes significant litigation settlements, net of amounts covered by insurance, that we deem not to be in the ordinary course of our business. In particular, Zoom believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses and assist in the comparison with the results of other companies in the industry.
Zoom defines non-GAAP net income and non-GAAP net income per share, basic and diluted, as GAAP net income attributable to common stockholders and GAAP net income per share attributable to common stockholders, basic and diluted, respectively, adjusted to exclude stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock, acquisition-related expenses, gains on strategic investments, litigation settlements, net, income tax benefits from discrete activities, and undistributed earnings attributable to participating securities.
Zoom excludes gains on strategic investments, net because given the size and volatility in the ongoing adjustments to the valuation of our strategic investments, we believe that excluding these gains or losses facilitates a more meaningful evaluation of our operational performance. Zoom excludes income tax benefits from discrete activities, including the income tax benefit related to the release of the US federal and state valuation allowance, because of their nonrecurring nature.
Zoom defines free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment. Zoom defines adjusted FCF as free cash flow plus litigation settlement payments, net. Zoom adds back litigation settlement payments, net because they are not part of Zoom's ongoing operating activities, and the consideration of measures that exclude such payments can assist in the comparison of cash generated from operations in different periods which may or may not include such payments and assist in the comparison with the results of other companies in the industry.
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