With the coronavirus emergency over, Zoom Video Communications (ZM) faces intensified competition. 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.
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Zoom’s cloud-based software sets up video calls, with chat tools available. Also, customers can easily share content. But its growth in the consumer market will likely continue to slow amid rising competition.
Microsoft (MSFT) and its Teams communications tools for large companies and small businesses is Zoom’s major rival in the business market.
Zoom Video reported January-quarter earnings and revenue that topped estimates amid lowered expectations. ZM stock popped on mixed 2023 guidance as cost-cutting moves to improve expected profitability amid a weak revenue outlook. Zoom Video on Feb. 7 said it would cut 1,300 jobs, or about 15% of its workforce.
Zoom Stock: Strong Balance Sheet
Zoom Video in early March said company President Greg Tomb, a former cloud computing executive at Alphabets‘s (GOOGL) Google, will leave Zoom recently rebranded its tools to Zoom Team Chat.
“ZM now has several potentially game-changing products in the market,” Credit Suisse analyst Fred Lee said in a recent note to clients. “While Zoom Contact Center will take some time to move the needle, Zoom Phone’s blistering phone adoption is noteworthy and quickly approaching 10% of the company’s total revenues.”
As of March 21, Zoom stock has climbed about 5% in 2023. In 2022, ZM stock retreated about 63% amid volatility in the tech-heavy Nasdaq composite.
On the plus side, Zoom Video has about $5.4 billion in cash on its balance sheet.
Amid Covid-19, Zoom morphed into a social phenomenon as making video calls a 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.
In addition, demand for Zoom videoconferencing software surged as businesses told employees to work from home. Revenue growth for Zoom stock has slowed as in-person meetings resume and workers return to offices.
Five9 Acquisition Terminated
As the coronavirus crisis eases, retaining small businesses as well as corporate accounts will be one key to Zoom’s success. For customers with one to 10 employees, renewals are expected to slow as the economy reopens and shelter-in-place orders lift. There’s expected to be less turnover of larger customers.
In the business market, Zoom rivals include RingCentral (RNG), Cisco Systems (CSCO), Google and others. Zoom faces pricing pressure in the business market as competition intensifies, said a UBS report.
Growth in annual recurring revenue for business customers with contracts topping $100,000 is one metric to monitor.
In July 2021, Zoom Video and Five9 (FIVN), which automates call center services, announced a deal to merge. The all-stock deal was originally valued at $14.7 billion. But the companies terminated the agreement on Sept. 30.
Zoom Video aims to be a player in the contact center market with its own products and services. And, artificial intelligence software will likely play a role.
Zoom Stock: Customer Retention Key
One key to Zoom’s success has been a “freemium” business model. Zoom’s basic video-calling package is free.
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.
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.
It’s not clear how much some new product initiatives are contributing to growth.
Zoom Phone, a cloud-calling product rolled out in 2019, lets customers set up group internet phone calls without video. The Zoom Phone replaces traditional business PBX phone systems.
Zoom Chief Came To US In 1997
Eric Yuan, Zoom’s chief executive and founder, came to the US in 1997. He started out with WebEx Communications and eventually became its vice president of engineering.
Cisco acquired WebEx for $3.2 billion in 2007. Yuan then became Cisco’s corporate vice president of engineering for collaboration software. He later formed San Jose, Calif.-based Zoom Video in 2011.
Zoom Video has built up alliances with the likes of Salesforce.com (CRM), Atlassian (TEAM) and box (BOX). Salesforce.com invested in Zoom stock prior to its initial public offering and reaped big gains.
Zoom Video has forged new deals in the enterprise market, such as one with software maker ServiceNow (NOW).
Zoom Stock Fundamental Analysis
For the January quarter, Zoom Video said it earned $1.22 per adjusted per share, down 5% from a year earlier. Revenue rose 4% to $1.12 billion.
Sales growth slowed for the eighth-straight quarter. A year earlier, Zoom earned $1.29 a share on sales of $1.07 billion.
Zoom stock analysts had projected earnings of 81 cents a share on sales of $1.1 billion for the period ended Jan. 31.
For fiscal 2024, Zoom said it expects earnings of $4.15 at the midpoint of its outlook vs. estimate of $3.66. The company said it expects revenue of roughly $4.44 billion vs. estimates of $4.60 billion.
ZM Stock Historical Performance
The Zoom IPO in April 2019 raised $752 million, with shares priced at 36. ZM stock popped 72% on the first day of trading, but by late June that year, ZM stock consolidated as some analysts questioned Zoom’s lofty valuation.
Then ZM stock’s relative strength line began to improve in January 2020, before the coronavirus outbreak.
Zoom stock broke out on Feb. 18 that year from a cup-with-handle buy point of 93.40 as the coronavirus pandemic began to spread globally. ZM stock soared in March as the corporate shift to work-from-home boosted demand for its video-calling app.
ZM stock peaked at 588.84 in October 2020. Zoom stock ended 2020 up more than 400%, but they precipitously retreated 45% in 2021.
Shares currently own an IBD Relative Strength Rating of only 20 out of a best-possible 99.
Zoom Stock: Is It A Buy Right Now?
Zoom stock holds an IBD Composite Rating of 52 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.
In addition, ZM stock holds an Accumulation/Distribution Rating of D-plus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
As of March 21, Zoom stock has no valid entry point. To be actionable, ZM stock needs to form a new base.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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