Although Zoom stock (NASDAQ:ZM) beat the S&P 500 in terms of profits, that significant run is now gone. As the business refocuses on corporate clients, will Zoom stock prosper once more?
Microsoft (MSFT), with its Teams messaging tools for big and small enterprises, is impeding progress.
Microsoft Teams and Zoom are in a two-horse battle for the video conferencing industry, Morgan Stanley analyst Meta Marshall recently wrote in a note to clients.
The tools of Zoom have recently been renamed Zoom Team Chat. It announced new ServiceNow and Atlassian (TEAM) connections (NOW).
Zoomtopia, an upcoming client convention, is one potential trigger for ZM stock. On November 8 and 9, it will take place. Analysts predict that Zoom Video will introduce new products and revise its business plan.
Considering the market downturn and the Fed’s recent rate increases, investors should exercise caution while making any purchases.
Zoom Stock: Downgraded 2023 Prospects
In the midst of Nasdaq composite volatility thus far in 2022, ZM stock has fallen by roughly 60%. Zoom stock has underperformed the 25%-down S&P 500.
Growth-oriented software equities are still in trouble. The iShares Expanded Tech-Software ETF (IGV), a frequently followed indicator of software performance, is down 39% in 2022. September saw a more than 11% decline in the software index.
On the good side, Zoom Video’s balance sheet as of July 31 showed $5.5 billion in cash.
While forecast fell short of Wall Street expectations due to sluggish consumer and small business sales, Zoom Video announced mixed results for the July quarter. In contrast to prior projections of 11% growth, the updated fiscal 2023 revenue estimate now calls for 7% year-over-year increase.
Video calls are set up through Zoom’s cloud-based software, which also offers chat features. Additionally, users may quickly exchange material. However, due to escalating competition, its consumer market growth would probably continue to decline.
ZM Shares: Solid Balance Sheet
As customers often made video chats to stay in contact with family and friends during Covid-19, Zoom evolved into a social phenomenon. The necessity for telemedicine and remote learning has increased demand for Zoom Video’s cloud-based services.
Zoom’s free K–12 school usage ended on June 30. A UBS research suggested that some schools would upgrade to premium versions.
Furthermore, as more organizations encouraged their staff to work remotely, demand for Zoom videoconferencing software increased. As in-person meetings restart and employees go back to their workplaces, revenue growth for Zoom stock has halted.
Retaining small companies, as well as corporate clients, will be a crucial factor in Zoom’s success when the coronavirus issue subsides. As the economy recovers and orders for shelter-in-place are lifted, renewals for clients with one to ten staff are predicted to decline. Larger clients are anticipated to change less often.
Terminated Five9 Acquisition
RingCentral (RNG), Cisco Systems (CSCO), Google, and others are competitors of Zoom in the commercial sector. According to a UBS analysis, Zoom is under pressure to lower its prices as competition heats up in the commercial market.
Greg Tomb will become the president of Zoom Video, the firm announced in June. Tomb has worked at Google Cloud, a division of Alphabet (GOOGL), most recently as the vice president of sales for Google Workspace.
One indicator to track is growth in yearly recurring revenue for commercial clients with contracts exceeding $100,000.
A merger agreement between Zoom Video and Five9 (FIVN) was announced in July 2021. With the use of internet chatbots, or virtual assistants, Five9 has automated call center services since 2001.
The initial estimated value of the all-stock agreement was $14.7 billion. On September 30, however, the corporations ended their cooperation.
The goal of Zoom Video is to compete in the contact center business with its own goods and services. And it’s conceivable that software with artificial intelligence will be involved.
IQ for Sales was featured at Zoom’s “Work Transformation Summit.” The product offers meeting add-on features for discussion intelligence.
Solvvy, which employs conversational technologies based on artificial intelligence for online customer service, was bought by Zoom in May. Additionally, Zoom has invested in Observe.AI, a business that develops artificial intelligence-based contact center software.
ZM Stock: The Value of Customer Retention
A “freemium” business strategy has been one of Zoom’s success factors. The entry-level Zoom video calling plan is cost-free.
Zoom has restrictions on the amount of people that may join a group call and the duration of sessions. Following prior video services that produced choppy pictures and out-of-sync audio, Zoom software receives good marks for ease of use and simplicity.
Videoconferences held using Zoom’s cloud platform are referred to as “Zoom Meetings.” A minimum of 10 or 50 seats are needed for the paid Zoom business plans, which cost $15 or $20 per employee.
It’s unclear how much some new product efforts are helping to drive growth.
Customers may set up group internet phone conversations without video using Zoom Phone, a cloud-calling tool released in 2019. Traditional company PBX phone systems are replaced with the Zoom Phone.
Zoom management debuted “OnZoom” during the Zoomtopia user conference in mid-October 2020. It is a platform for online events with a fee for entry. Event production tools were bought by Zoom from the company Liminal in late 2021.
A $100 million fund for app developers has been established by Zoom Stock.
In 1997, Zoom Chief arrived in the US.
The founder and CEO of Zoom, Eric Yuan, immigrated to the United States in 1997. In the beginning, he worked with WebEx Communications, rising to the position of vice president of engineering.
For $3.2 billion, Cisco purchased WebEx in 2007. After that, Yuan was appointed corporate vice president of engineering for Cisco’s collaboration software. In 2011, he founded Zoom Video, a company situated in San Jose, California.
Alliances have been formed by Zoom Video. Slack Technologies (TEAM), Salesforce.com (CRM), Atlassian (TEAM), and Box are examples of sales partners (BOX). Prior to Zoom’s initial public offering, Salesforce.com made an investment in the company’s shares and profited greatly.
Zoom Video has made additional agreements in the business sector, such as one with software developer ServiceNow (NOW).
Ricky Kapur, a former Microsoft employee, was also hired by Zoom Video in 2021 to serve as the region’s marketing leader.
Basic Analysis of Zoom Stock
Even though projections were lower, Zoom’s second quarter profits, which were adjusted to $1.05 per share, above forecasts by 23%.
Revenue increased by 8% to $1.09 billion, easing from a 54% increase in the same period last year. Zoom had earnings of $1.36 per share on $1.02 billion in revenues the prior year.
For the quarter that ended on July 31, analysts tracking Zoom stock predicted earnings of 94 cents per share on $1.12 billion in revenue.
Zoom said that 3,116 of its clients contributed more than $100,000 per year, up 37% from the previous year.
Zoom Video expects profits per share for the current quarter, which ends in September, to range between 82 and 83 cents, vs analyst projections of 92 cents. Zoom Video stated that it anticipates sales in the range of $1.095 billion to $1.1 billion vs projections of $1.15 billion.
ZM Stock Performance History
By pricing its shares at 36 in April 2019, Zoom raised $752 million. On the first day of trade, ZM shares rose 72%.
However, by the end of June of that year, ZM shares had stabilized as several analysts questioned Zoom’s exorbitant value.
Over the course of over eight months, Zoom stock developed a cup-shaped pattern on its chart; on October 23, 2019, it struck a low of 60.97, which was 43% below its IPO-launch high.
Prior to the coronavirus epidemic, the relative strength line for ZM stock started to become better in January 2020.
As the coronavirus epidemic swept around the globe on February 18, that year, Zoom stock had a breakout from a cup-with-handle buy mark of 93.40. The demand for ZM’s video-calling software increased in March as a result of the corporate move to work from home.
On October 19, 2020, the price of ZM shares reached a maximum of 588.84. 2020 saw a 400%+ gain in Zoom shares.
But in 2021, Zoom stock fell by 45%.
Only 13 out of a possible 99 points is the IBD Relative Strength Rating now assigned to ZM stock. The Relative Strength rating compares a stock’s 52-week price performance to those of all other equities.
Is Zoom Stock A Buy At This Time?
An IBD Composite Rating of 35 out of 99 is currently assigned to Zoom Stock.
Five different proprietary ratings are combined into one simple rating by IBD’s Composite Rating. A Composite Rating of 90 or above indicates the top growth stocks.
Zoom stock (NASDAQ:ZM) also has an E Accumulation/Distribution Rating. This evaluation considers changes in a stock’s price and volume over the previous 13 trading weeks. According to its present rating, more money are being used to purchase than to sell.
The grade gauges institutional purchasing and selling of a company on a scale from A+ to E. Heavy institutional purchasing and selling are denoted by A+ and E, respectively. Consider the grade of C as impartial.
There is no viable entry opportunity for ZM shares as of October 17. Zoom stock has to establish a new foundation before it can be traded.
Featured Image: Megapixl @Insidestudio
Author Valerie Remorosa