Is Zoom Video Communications Stock a Buy? The Motley Fool

18 brokerages have issued 12 month price objectives for Zoom Video Communications’ shares. On average, they expect the company’s share price to reach $77.56 in the next year. This suggests a possible upside of 17.6% from the stock’s current price. View analysts price https://www.forexbox.info/if-you-joined-the-gamestop-frenzy-or-dabbled-with/ targets for ZM or view top-rated stocks among Wall Street analysts. Zoom is still generating healthy growth on top of its triple-digit percentage revenue growth last year, but the market’s reaction indicates investors are still worried about its post-pandemic growth.

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

One key to Zoom’s success has been a “freemium” business model.

The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.1%. We discount the terminal cash flows to today’s value at a cost of equity of 8.0%.

The all-stock deal was originally valued at $14.7 billion. In the business market, Zoom rivals include RingCentral (RNG), Cisco Systems (CSCO), Google and others. Growth in annual recurring revenue for business customers with contracts topping $100,000 is one coinbase lists unmasking of bitcoins creator among business risks metric to monitor. Also, 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.

Zoom Video Communications’ stock is owned by many different retail and institutional investors. Top institutional investors include Vanguard Group Inc. (7.69%), Vanguard Group Inc. (7.69%), ARK Investment Management LLC (3.64%), Sumitomo Mitsui Trust Holdings Inc. (2.17%), Nikko Asset Management Americas Inc. (1.99%) and FIL Ltd (1.01%). Zoom Video Communications’ stock was trading at $71.91 at the start of the year.

  1. Zoom earnings for the quarter ending Jan. 31 were 1.42 per share on an adjusted basis, up 16% from a year earlier.
  2. He later formed San Jose, Calif.-based Zoom Video in 2011.
  3. Meetings on the platform can host as many as 1,000 participants, while webinars can scale up to as many as 50,000.

Further, Zoom stock holds an IBD Composite Rating of 73 out of 99. The best growth stocks have a Composite Rating of 90 or better. Also, Zoom Video has forged new deals in the enterprise market, such as one with software maker ServiceNow (NOW). A “Zoom Meeting” refers to a videoconferencing session hosted on its cloud infrastructure.

Zoom Stock: Buy, Sell, or Hold in 2022?

The company was incorporated in 2011 and is headquartered in San Jose, California. Zoom Video Communications’ (ZM -0.87%) stock price dropped to its lowest levels in over three months after the company released its second-quarter earnings report on Aug. 30. The video conferencing software company beat Wall Street’s estimates on the top and bottom lines, but its guidance for the third quarter slightly missed analysts’ profit expectations and hinted at a post-pandemic slowdown.

NASDAQ: ZMZoom Video Communications Inc Stock

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. Compared to the current share price of US$69.2, the company appears quite good value at a 30% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula – garbage in, garbage out. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.

Zoom’s management also views international expansion as an important opportunity. Continuing the two-year comparisons, that number is up from Q3 2020, when international revenue was only 20% of total revenue. If Zoom can continue to grow internationally, it opens up plenty of new revenue opportunities. As of Aug. 23, 2021, Zoom had 240,744,533 outstanding shares of Class A common stock and 56,383,369 outstanding shares of Class B common stock. The U.S. government has been increasing its scrutiny of Zoom on several fronts.

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For customers with one to 10 employees, renewals are expected to slow as the economy reopens and shelter-in-place orders lift. Meanwhile, recently told its employees to report to its offices on a more regular basis. Amid Covid-19 emergency, demand for Zoom videoconferencing software surged as businesses told employees to work from home. The company is scheduled to release its next quarterly earnings announcement on Monday, May 27th 2024.

In order to do this, businesses need the cash to invest in research and development and capital improvements. Zoom has the balance sheet to do this and has been very active in rolling out new products. Zoom stock analysts had projected earnings of $1.15 a share on sales of $1.13 billion. https://www.day-trading.info/forex-majors-minors-and-exotics-currencies/ 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. Microsoft (MSFT) and its Teams communications tools are Zoom’s major rival in the business market.

The consensus among Wall Street research analysts is that investors should “hold” ZM shares. 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. With the coronavirus emergency long over, the clock is ticking on Zoom Video Communications (ZM). A rebound in revenue growth for Zoom stock depends on its success in the corporate market. And the outlook for ZM stock is tied to whether the company morphs into a broader business communications platform. Instead of trying to figure out exactly how much Zoom’s revenue growth will decelerate as the pandemic passes, investors should track its expanding operating margins and rising free cash flow.

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