Are Zoom (NASDAQ: ZM) shares still a bargain?
If there is one winner from the COVID-19 lockdown, it is Zoom Video Communications Inc., which delivered arguably one of the best quarters in enterprise software history.
This was led by massive accelerations in growth, both within the quarter and for FY21, leading to its first quarter results coming in way ahead of expectations. Zoom’s shares are now trading at approximately 2,433 times its fiscal 2021 earnings. Interestingly, it is now worth more than the world’s seven biggest airlines.
The sixth month stock chart is impressive:
It is no surprise really.
Zoom has been the conferencing platform of choice during lockdown and it seems this momentum will continue well into the future.
So is Zoom still a bargain, despite this huge upswing and a share price of US$209.80.
Analysts are still pretty bullish about Zoom shares continuing to rise. Here are a few reasons:
1. Work habits will change
Working from home may have been forced upon us, but the world has adjusted and for the most part found it convenient. The outcome is it is now likely to be a permanent fixture of employment agreements. Companies such as Twitter Inc. have told its employees they could work from home for the rest of the year.
Which means reliable videoconferencing systems will be required to keep work flowing and colleagues connected.
A work from home/office hybrid is the post-pandemic future and Zoom looks to be in the box seat to have this covered.
To see how serious this movement is, you need look no further than Germany which is working to enshrine the right to work from home in labor law.
This will lead to a redefinition of the working experience and better ideas of the type of work to be done from home and what will be required in an office environment.
With more people working on a permanent part-time basis from home, Zoom is in the box seat to capitalise.
2. Zoom seems to be ahead of other teleconferencing sites
Zoom’s rise in popularity caught its main rivals off-guard and while they will come hard, it is likely that Zoom is now the brand of choice for teleconferencing.
Zoom has grown from 10 million daily users in December to more than 300 million in April and that number is climbing.
Google Meet has also capitalised. The site formerly known as Google Hangout, which has a very casual ‘school friend’ vibe about it, may have changed its name to make it more universally appealing, particular to corporates.
Demand for Meet has increased since the name change, with more than 100 million daily meeting participants. It’s a strong number and Meet is being integrated into GMail, which should boost its popularity further but it is well behind Zoom, which clearly has the inside track.
Skype has surprisingly only increased its numbers by 40 million users per day and Microsoft is scrambling to roll out a more user friendly Teams. HouseParty and Facebook’s Messenger Rooms are also competitors, but HouseParty doesn’t necessarily come across as a serious business tool and teleconferencing isn’t Facebook’s core business.
However, it may be a case of too little, too late for all of these rivals as Zoom also continues to improve its service, having allayed security and privacy fears.
3. New market opportunities
Zoom’s goal is now to convert those who are using the platform for free to paid subscriptions.
Before lockdown this goal was a slow moving beast, post lockdown it now looks far more achievable.
Zoom is now synonymous with videoconferencing. Its name is accepted vernacular. When you want to video call someone, the words that may very well come out of your mouth are: I’m going to ‘Zoom’ him or her.
If businesses are to change their work from home policies, they will need reliable tools, which means full subscriptions without time limits for conferencing. There is, of course, a hack to that: when the meeting ends, you just dial back in. However, that can be a pain in the proverbial if you are in the middle of a presentation and a waste of time waiting for people to reconnect.
Zoom will also now be looking to cross-sell its Zoom Phone (a cloud-calling solution designed for Zoom users who want to set up quick calls without video) and Zoom Rooms services.
In other words, Zoom hasn’t tapped out its ingenuity and there is still plenty of room for the company to grow.
The wash up
There is a lot more to Zoom than meets the eye. It is a pure stay-at-home stock at a time when staying at home has been more important than ever.
Zoom’s stock price was on an uptrend before the pandemic started, so this isn’t a flash in the pan. In fact, shares have now tripled in value since the start of the year. Although if you are considering Zoom, professional financial advice should be sought to run through the ins and out of the stock and whether it meets your risk profile.
People may have missed out on a decent entry price, however the company will continue to roll out more products at a time when people will continue to work from home now and well into the future.
It is now also the name brand for videoconferencing and that kind of branding is priceless in this brave new world.
This update is not financial advice. This article is general news and information.
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