Tech stocks that rose in the early days of the COVID-19 outbreak have taken the worst of the damage. Few companies have taken a more significant fall than Zoom Video Communications stock (NASDAQ:ZM). The stock’s value has dropped by around 86.9% from its high in 2020.
Zooms stock (NASDAQ:ZM) price in 2020 may have gotten far ahead of itself. However, the losses it has endured subsequently have gone too far. Zoom shares are now available for only 20.3 times adjusted earnings forecasts for the fiscal year ending January 31, 2023.
A fantastic value
The average stock in the Nasdaq-100 index is now trading at 20.8 times forward-looking earnings expectations. This suggests that the market expects Zoom to expand slower than the typical Nasdaq-100 company.
Revenue increased 8% yearly to $1.1 billion in the second fiscal quarter. This isn’t fantastic, but it’s crucial to recall how quickly this company has expanded over time. Zoom’s entire income stream has grown at an astounding 96.1% compound annual growth rate over the last three years.
Because of the COVID-19 epidemic, most firms were scurrying to discover the work-from-home options that Zoom already provided. So you may be shocked to discover that most of those firms have remained, and new ones are joining them. During the three months ending July 31, 2022, the firm claimed a 120% net dollar growth rate among its enterprise clients.
Why is Zoom’s stock price plummeting?
Zoom is not immune to macroeconomic forces, such as the Ukraine conflict and the EU’s ensuing energy crisis. When you factor in a stronger dollar, it’s no surprise that sales from Europe’s geographic division fell 8% year over year in the second quarter.
Aside from European pressure, the firm is experiencing substantially less demand from consumers and small companies now that it is much safer to meet in person. As a consequence, when the business released fiscal second-quarter results in August, it slightly missed its own sales target.
Because markets abhor ambiguity, it’s no surprise that Zoom’s stock price plummeted when the firm missed its own sales target. Investors will be relieved to discover that a change in revenue mix could boost visibility going forward.
Obtaining Enterprise Clients
Zoom aspires to be more than a supplier of online meeting software to its customers. Zoom Rooms, Zoom Phone, Zoom Contact Center, and Zoom IQ for Sales have all been introduced for that purpose. These efforts are finding momentum, with awe-inspiring results from Zoom Phone. Year over year, the number of customers with 10,000 or more paid seats more than quadrupled in the second quarter. Even though the Phone was launched less than four years ago, Zoom’s business customers have already paid for almost 4 million tickets.
Individuals and small companies are reconsidering paying for Zoom’s services now that it is typically safe to meet in person. It’s a different tale with its most essential clients. Revenue from enterprise clients, who are expected to be more dependable than nonenterprise consumers, increased 27% year on year in the second quarter.
The tremendous increases Zoom reported in 2020 are unlikely to be repeated until some revolutionary new infection keeps us all at home. However, strong adoption among the company’s more dependable business customers implies we may anticipate rather consistent cash flows. This stock seems to be a good purchase at its current low price.
Featured Image – Unsplash © foxxy2002
Author Okoro Chinedu 
