IS ZOOM STILL A BUY?
Zoom Video Communications is arguably the video communications platform leader. Founded in 2011, the platform had its IPO in April 2019. The response was overwhelmingly positive, with the stock topping out at $104.49 mid-year.
However, things went bleak as the stock dipped to around $60 at the end of the year. 2020 was the rise and rise of Zoom. The Covid-19 pandemic in 2020 forced people to stay home and work remotely.
Zoom became the primary mode of communication, especially for meetings. These activities boosted the sales and revenue of the company significantly.
During this period, the performance of Zoom stock beat the outlook every quarter, especially in sales and profits.
During the pandemic, the growth trajectory of the Zoom stock was continually on an upward trend.
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That has changed with the resumption of pre-pandemic norms such as attending school and going to the office. So, is zoom a good bargain?
Zoom growth trajectory struggle
The communication company had a rough start in 2022 when the stock fell 40%. The market was bearish on growth stocks, as the future of such stocks becomes unpredictable by the day.
It is challenging to state the actual position of the expected trend of Zoom stock today, as the economic moat that kept them a powerhouse during the pandemic no longer exists.
As life slowly returns to normal, with more in-person interactions, investors are growing edgy about the future of zoom.
With inflation on the rise, the Federal Reserve increased interest rates. The move decreases the current value of expected cash flows.
Not all is lost
Zoom has been experiencing a slow-down, especially in growth. To remain at the top, the company has expanded its range of products.
The move aims to broaden the business and ease investors' fears.
The two significant developments are;
- • A cloud contact centre product
- • A new model of internet-enabled technology to replace landlines
The developments seek to help businesses and workplaces, in general, improve meetings for both remote and in-office workers.
The stock is highly volatile, but the company consistently produces strong business results.
Additionally, the stock is more affordable, retailing at less than 268.1% less than its last 52-week high stock price of $406.48. The stock is retailing at $112.24 at the time of this writing.
During its peak revenue period of the pandemic, the Zoom stock price was so high as if its growth would never slow. On the 19th of October 2020, the stock closed at an all-time high of $568.34.
At the time, the high prices excited stakeholders and scared away potential investors. Today, the stock price is reasonable and stable.
The current price is suitable for a potential investor who believes in Zoom's business model and is optimistic about its future performance.
Revenue and Earnings of first-quarter fiscal 2023
- • Revenue: $1,073.8 million
- • GAAP income from operations: $187.1 million
- • Non-GAAP income from operations: $399.6 million
- • Cash flows from operating activities: $526,151.00
- • Cash flows from investing activities: $42,334.00
- • Cash flows from financing activities: $133,243.00
Unsurprisingly (compared to past trends), Zoom surpassed analysts' outlook estimates for the first quarter of fiscal 2023. The results gave profitability from the results of the last quarter.
The cash flow figures (fiscal 2022) have less and more balanced amounts than the fiscal year 2021. This shows that Zoom has adapted well to its decelerating growth by reducing costs.
In the current wake of rising inflation and interest rates, investors want tech company stocks that can produce optimal earnings while withstanding the high inflation and interest tide.
A company's capital structure is critical in determining how a company utilizes debt and equity to fund its operations. For a profitable system, a company's capital should be liquid in the short term to handle operating costs.
Additionally, it should accommodate financial expansion without increasing long-term debt to an unsustainable level. I classify Zoom as having a conservative capital structure.
The debt to equity ratio for Zoom fiscal 2022 was 0.01. The company's highest debt to equity ratio over the past six years was 0.09.
The ratio shows that Zoom is not aggressive in financing its growth with debt. This is a good indication for the investors, as it proves good management. It also shows that the stocks are secure.
Revenue growth has slowed down for the video communication giant post-pandemic. However, we need to keep in mind that Zoom grew steadily before the pandemic.
It will be hard to analyze Zoom's growth based on its market performance compared to competitors instead of comparing it to its past glory (during the pandemic).
That would be the only way to picture the expected growth trajectory accurately.I would recommend a buy and hold on medium-term for Zoom.
The recommendation is based on their balanced financial reports over the years and good management.
I/we have a position in an asset mentioned