01382 770599It executed its seven-point plan and avoided what could have been a growth-crushing problem. Please follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth stocks, buy points, breakouts, sell rules and market insight. You could consider not boosting the P-E ratio at all in this stop loss forex equation. So, 389 times $1.54 offers what may seem like a more reasonable, yet still lofty, price goal of 599 for Zoom stock. This target would spell a 1,563% climb from its IPO pricing at 36 a share in April 2019. Numerous true market leaders have achieved such a fantastic gain over time.
- 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.
- The platform is in no way unique, which is confirmed by Gartner’s research, which gives both Zoom and Microsoft Teams very similar ratings and places on its magic quadrant.
- A hold rating indicates that analysts believe investors should maintain any existing positions they have in ZM, but not buy additional shares or sell existing shares.
- The emergence of formidable competitors, particularly Microsoft Teams (MSFT), equipped with advanced AI capabilities and seamless integration, has eroded Zoom’s once-dominant position.
- And yet, Zoom has proven me wrong over these last few months, with the company rapidly rolling out new features and beating Microsoft and Cisco to the feat.
While the company is highly profitable and debt-free, its stock valuation at around 13x forward PE raises doubts about the attractiveness of the risk-reward proposition, especially given the anticipated mid-single-digit EPS growth. https://bigbostrade.com/ The graphic illustrating Zoom’s customer adoption curve indicates a departure from high-growth status, raising concerns about the stock’s premium valuation. Furthermore, we need to also acknowledge that Zoom is debt-free.
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I still don’t, which is essentially a result of the significant competition it faces from Microsoft with its Teams platform, Zoom’s weak moat, and its financial disadvantage. This was despite the videoconferencing industry outlook actually looking really decent. Looking at the latest data and estimates, we can see that while the work-from-home trend intensity has definitely eased off from COVID levels, it is here to stay.
Zoom Video in early March said company President Greg Tomb, a former cloud computing executive at Alphabet’s (GOOGL) Google, will leave. At its annual Zoomtopia user conference in early October, the company said it will not charge customers for use of its AI Companion. Its capabilities include meeting/chat summaries and smart recordings. The Nasdaq composite shot up 43% amid buzz over generative artificial intelligence technology.
Sales & Book Value
If you use the 130% expansion rule, you’d get a “future P-E ratio” of 895 times earnings. Multiply 895 by the current 2021 EPS estimate of $1.54 and you end up with a price target of 1,378. To me, this is one of my biggest concerns regarding an investment in Zoom, as management does not seem to care and continues to dilute shareholders. Analysts polled by FactSet had expected Zoom earnings of $1.09 a share on sales of $1.12 billion. Zoom’s cloud-based software sets up video calls, with chat tools available. Zoom Video is racing to build more artificial intelligence tools into its business communications platform.
For the entire fiscal year, the Zacks Consensus Estimates are projecting earnings of $4.94 per share and a revenue of $4.51 billion, representing changes of +13.04% and +2.6%, respectively, from the prior year. With a focus on tech and “the Great Energy Transition (including uranium)”, Michael runs a concentrated portfolio with approximately 15 to 20 stocks and an average holding period of 18 months. My Marketplace highlights a portfolio of undervalued investment opportunities – stocks with rapid growth potential, driven by top quality management, while these stocks are cheaply valued.
Furthermore, while hard to determine, some analysts believe Teams is about to reach $8 billion in revenue in 2023. This is up from $6.8 billion in 2020, when, of course, usage was much higher. One way or another, it is safe to say that Microsoft continues to close the gap and is gaining on Zoom. This is despite the fact that Zoom is, in fact, one of the companies that could significantly benefit from the AI boom and has actually shown quite some promising developments over recent months. I must admit that the company has done better financially and fundamentally in terms of development than I anticipated in April.
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I must admit that Zoom’s fast roll-out of AI functionalities has impressed me as the company, in several areas, seems to outpace the competition with these innovations, adding to the attractiveness of the Zoom platform. Outside of making notes within the Zoom platform, I don’t think so. Microsoft Office and Google Docs have very strong user bases with great compatibility and accessibility with other apps and platforms of those companies. The company will introduce the program in 2024 to go up against Microsoft Office and Google Docs.
We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$29b. The last step is to then divide the equity value by the number of shares outstanding.
Zoom has almost no debt, boasting a debt-to-equity ratio of 2% and a strong cash position of $1.3 billion. The company also grew free cash flow by over 1,100% in fiscal year 2021 up to $1.4 billion. The significant climb in free cash flow was a result of superb revenue growth stemming from pandemic-driven demand. I have increased both my revenue and EPS estimates through the company’s fiscal FY27. I expect the company to have reached a peak in its margins and these to ease slightly in the upcoming years. These expectations result in the following financial projections.
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Furthermore, despite my overall negative view so far, Zoom has also positively surprised me over the last eight months in terms of feature developments and the integration of AI functionalities in particular. In my April article, I explained how I expected Zoom to fall behind the competition on this front as it has to compete with big tech peers like Cisco and Microsoft with superior financial resources and much more experience in AI. And yet, Zoom has proven me wrong over these last few months, with the company rapidly rolling out new features and beating Microsoft and Cisco to the feat.
ZM Stock Analysis – Frequently Asked Questions
In the meantime, these key sell rules may help you take at least some profits close to the peak of this current rally. The concept behind a 130% increase in the price-to-earnings ratio came from decades of IBD research. Morgan Stanley analyst Meta Marshall upgraded Zoom Video from an Equal-Weight rating to an Overweight rating and raised the price target from $360 to $400. Zoom releases a bunch of new features but apparently they aren’t enough to eclipse its disappointing earnings last week, and the stock slips a further 4%.
Within the videoconferencing industry, there are just three real factors to leverage as a way to set your platform apart from the competition, and these are features, costs, and compatibility. Remarkably, as of the end of 2022, the company holds a very significant market share of 55% in the industry, far ahead of its closest peer, Microsoft, at 21%. However, I do not view the market share as anywhere close to sustainable. 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.
This puts Eric S. Yuan in the top 30% of approval ratings compared to other CEOs of publicly-traded companies. Zoom Video Communications’ stock was trading at $71.91 at the beginning of 2024. Since then, ZM stock has decreased by 6.6% and is now trading at $67.18.