Yes, consumers flocked to Zoom Video Communications (ZM) during the coronavirus emergency. Profits soared for ZM stock, which outperformed the S&P 500. That big run is long over. Can Zoom stock thrive once again as the company refocuses on corporate clients?
Standing in the way is Microsoft (MSFT) and its Teams communications tools for large companies and small businesses.
"The video conferencing market is a two-headed race between Microsoft Teams and Zoom," Morgan Stanley analyst Meta Marshall said in a recent note to clients.
One possible catalyst for ZM stock is the upcoming customer conference called Zoomtopia. It's slated for Nov. 8 to Nov. 9. Zoom Video could roll out new products and provide updates, analysts say.
Zoom Stock: 2023 Outlook Lowered
Zoom Video reported mixed July-quarter results while guidance missed Wall Street estimates amid weakness in consumer and small business sales. Updated fiscal 2023 revenue guidance now calls for 7% year-over-year growth, down from earlier guidance of 11% growth.
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.
Thus far in 2022, ZM stock has retreated about 56% amid volatility in the tech-heavy Nasdaq composite. Zoom stock has under-performed the S&P 500, which is down 15%.
Software growth stocks continue to struggle. A closely watched software benchmark — the iShares Expanded Tech-Software ETF (IGV) is down 29% in 2022. The software index retreated nearly 5% in August.
ZM Stock: Strong Balance Sheet
Amid Covid-19, Zoom morphed into a social phenomenon as making video calls became 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.
The free use of Zoom for K-12 schools stopped on June 30. Some schools could upgrade to paid versions, said a UBS report.
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.
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.
Five9 Acquisition Terminated
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.
Zoom Video in June said that Greg Tomb will join the company as president. Tomb had been at Alphabet's (GOOGL) Google Cloud, where he was most recently vice president of sales for Google Workspace.
Growth in annual recurring revenue for business customers with contracts topping $100,000 is one metric to monitor.
Zoom Video and Five9 (FIVN) in July 2021 announced a deal to merge. Started in 2001, Five9 automates call center services with website chatbots, or virtual assistants.
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.
At Zoom's "Work Transformation Summit," it showcased IQ for Sales. The product provides conversation intelligence add-on tools for business meetings.
Zoom in May acquired Solvvy, which uses artificial intelligence-based conversational tools in online customer support. Zoom has also invested in Observe.AI, a startup that uses artificial intelligence for contact center apps.
ZM 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.
At the Zoomtopia user conference in mid-October 2020, Zoom management introduced "OnZoom." It's an online event platform with paid admission. In late 2021, Zoom acquired assets —event production tools — from startup Liminal.
Zoom stock has created a $100 million fund for app developers.
Zoom Stock Fundamental Analysis
In Q2, Zoom earnings fell 23% to an adjusted $1.05 per share from a year earlier but topped estimates amid lowered expectations.
Revenue rose 8% to $1.09 billion, slowing from 54% growth in the year-earlier quarter. A year earlier, Zoom earned $1.36 a share on sales of $1.02 billion.
Zoom stock analysts projected earnings of 94 cents a share on sales of $1.12 billion for the period ended July 31.
In addition, Zoom said it had 3,116 customers contributing more than $100,000 each annually, up 37% from a year earlier.
For the current quarter ending in September, Zoom Video forecast earnings per share in a range of 82 cents to 83 cents, compared with analyst estimates for 92 cents. Zoom Video said it expects revenue in a range of $1.095 billion to $1.1 billion vs. estimates of $1.15 billion.
On the plus side, Zoom Video had $5.5 billion in cash on its balance sheet as of July 31.
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.
Zoom stock formed a cup chart pattern over nearly eight months, hitting a low of 60.97 on Oct. 23, 2019, down 43% from its IPO-launch high.
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 on Oct. 19 2020. Zoom stock ended 2020 up more than 400%.
But Zoom stock retreated 45% in 2021.
At the moment it is not a buy and I would refrain from entering.
DYODD
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