Consumers are attracted to Zoom Video Communications (NASDAQ:ZM) during the coronavirus emergency. ZM stock outperformed the S&P 500, but those days are over. Can Zoom stock thrive as it focuses on corporate clients?
Microsoft Teams for large and small businesses stands in the way.
Analyst Meta Marshall said that Microsoft Teams and Zoom compete in the video conferencing market.
Zoomtopia could boost ZM stock. It’s Nov. 8-9. Analysts say Zoom Video could launch new products and update its strategy.
Zoom Video ended July with $5.5 billion in cash.
Zoom Stock: Lower 2023 Outlook
Zoom Video’s performance for the July quarter was mixed, and its projection fell short of Wall Street expectations due to disappointing consumer and small business sales. The revised fiscal 2023 revenue forecast calls for 7% year-over-year growth instead of the original forecast’s 11% growth.
The cloud-based Zoom Video Communications (NASDAQ:ZM) program sets up video calls and provides chat options. Customers can also share material with ease. However, due to escalating competition, its expansion in the consumer sector will probably continue to be moderate.
ZM stock has dropped around 59% in 2022 despite Nasdaq composite volatility, which is heavily influenced by the tech sector. Zoom Video Communications (NASDAQ:ZM) stock has underperformed the 23%-down S&P 500.
Software growth stock prices are still in trouble. The iShares Expanded Tech-Software ETF (IGV), a well-monitored software benchmark, is down 36% in 2022. In August, the software index fell by about 5%.
Strong balance sheet for ZM Stock
Zoom evolved into a social phenomenon during Covid-19 as customers started using video conversations frequently to stay in touch with friends and family. The demand for Zoom Video Communications (NASDAQ:ZM) cloud-based services was bolstered by telemedicine and remote learning needs.
On June 30, Zoom’s free K–12 school usage ended. According to UBS research, some schools might upgrade to paid versions.
Additionally, as more companies encouraged their workers to work remotely, demand for Zoom videoconferencing software increased. Zoom stock’s revenue growth has halted as in-person meetings have resumed and employees have returned to their workplaces.
Retaining corporate and small company clients will be essential to Zoom’s survival once the coronavirus issue subsides. Renewals for clients with one to ten staff are anticipated to slow as the economy recovers, and orders for shelter-in-place are lifted. Less turnover of larger clients is anticipated.
End of Five9 Acquisition
Competitors of Zoom in the business market include Google, RingCentral (RNG), Cisco Systems (CSCO), and others. According to a UBS analysis, Zoom is under pressure to lower its prices in the commercial market as competition heats up.
One indicator to track is the increase in annual recurring revenue for business clients with contracts worth over $100,000.
In July 2021, Zoom Video and Five9 (FIVN) announced they would merge. Five9, founded in 2001, uses internet chatbots and virtual assistants to automate call center services.
The initial valuation of the all-stock transaction was $14.7 billion. But on September 30, the corporations ended their contract.
Zoom Video hopes to compete in the contact center industry with its goods and services. Software with artificial intelligence will probably also be involved.
The “Work Transformation Summit” hosted by Zoom featured IQ for Sales. For business meetings, the product offers conversation intelligence add-on features.
In May, Zoom purchased Solvvy, a company that provides online customer care using conversational technologies powered by artificial intelligence. Additionally, Zoom has invested in Observe.AI, which develops contact center software using artificial intelligence.
Customer Retention Is Key for ZM Stock
A “freemium” business strategy has been a factor in Zoom’s success. The free basic video calling plan is offered by Zoom.
The number of people that can join a group call and the duration of meetings are both restricted by Zoom. Following earlier video services that offered choppy images and out-of-sync audio, Zoom software is highly praised for its simplicity and convenience.
A videoconferencing conference on its cloud infrastructure is called a “Zoom Meeting.” Paid Zoom business plans have minimums of 10 or 50 seats and cost $15 or $20 per employee.
How much some new product initiatives are boosting growth is unclear.
2019 saw the launch of Zoom Phone, a cloud-calling service that enables users to organize group internet phone calls without video. Traditional PBX phone systems for businesses are replaced by the Zoom Phone.
In the middle of October 2020, Zoom management unveiled “OnZoom” during the Zoomtopia user conference. It’s an internet platform for events with an entry fee. Late in 2021, Zoom bought assets—tools for event production—from fledgling Liminal.
Zoom Stock has established a $100 million fund for app developers.
Zoom Chief arrived in the US in 1997
Zoom’s creator and CEO, Eric Yuan, immigrated to the country in 1997. He began working with WebEx Communications and ultimately rose to the vice president of engineering.
2007 saw Cisco pay $3.2 billion to purchase WebEx. Yuan subsequently rose to corporate vice president of engineering for Cisco’s collaboration software. Later, in 2011, he established Zoom Video in San Jose, California.
Zoom Video has formed a coalition. Sales partners include Box, Salesforce.com, Atlassian, and Slack Technologies (TEAM) (BOX). Before Zoom’s IPO, Salesforce.com invested in the company’s stock, which resulted in significant profits.
Zoom Video has made additional agreements in the business sector, such as with the software developer ServiceNow (NOW).
Ricky Kapur, a former Microsoft executive, was hired by Zoom Video in 2021 to lead its marketing efforts in the Asia Pacific region.
Fundamental Analysis of Zoom Stock
Zoom’s second quarter results are above predictions despite a 23% decline in earnings from a year earlier to an adjusted $1.05 per share.
From a 54% gain in the same period last year, revenue increased by 8% to $1.09 billion this quarter. Zoom generated $1.36 in profit per share on $1.02 billion in sales the year before.
For the quarter ending July 31, analysts for Zoom stock predicted earnings of 94 cents per share on revenues of $1.12 billion.
Additionally, Zoom reported that 3,116 of its clients contributed more than $100,000 annually, an increase of 37% from the previous year.
In contrast to analyst expectations for 92 cents, Zoom Video expects profits per share for the current quarter, which ends in September, to range between 82 and 83 cents. In contrast to projections of $1.15 billion, Zoom Video anticipates sales from $1.095 billion to $1.1 billion.
Historical Performance of ZM Stock
With shares valued at 36, the Zoom IPO in April 2019 raised $752 million. The price of ZM stock increased 72% on opening day.
But as several analysts questioned Zoom’s exorbitant valuation by late June of that year, ZM stock began to consolidate.
Over almost eight months, Zoom shares developed a cup-shaped pattern on the chart, reaching a low of $60.97 on October 23, 2019, which was 43% below its IPO-launch high.
Before the coronavirus epidemic in January 2020, the relative strength line for ZM stock started to rise.
A cup-with-handle purchase mark of 93.40 was reached by Zoom stock on February 18 of that year, which led to a breakout as the coronavirus pandemic swept across the globe. When businesses started allowing employees to work from home in March, demand for ZM’s video calling software increased.
On October 19, 2020, ZM stock reached a high of 588.84. Zoom stock saw a 400%+ increase by year’s end.
However, Zoom stock fell by 45% in 2021.
The IBD Relative Strength Rating for ZM stock is only 9 out of 99. The relative strength rating compares a stock’s price performance over the previous 52 weeks to all other equities.
Is It Time To Buy Zoom Stock?
The IBD Composite Rating for Zoom stock is 33 out of 99.
IBD’s Composite Rating creates a single, simple rating by combining five different proprietary ratings. The Composite Rating of the top growth stocks is 90 or above.
The Accumulation/Distribution Rating for Zoom Stock is E. This evaluation looks at price and volume movements in stock over the last 13 trading weeks. According to its current rating, more money goes into purchases than sales.
The ranking gauges institutional stock purchases and sales on a scale from A+ to E. E denotes heavy selling, whereas A+ denotes heavy institutional buying. Consider a C as a neutral grade.
ZM stock has no possible entry point as of September 26. Zoom stock must establish a new foundation to be tradeable.
Many more top stocks to purchase or monitor may be found in IBD Stock Lists and other IBD publications.
Featured Image: Megapixl @Insidestudio