You would be hard-pressed to match the run Zoom Video Communications (NASDAQ:ZM) shares had last year. With many Americans suddenly working from home and schools adopting remote learning, Zoom became the remote communication tool. Up until mid-October, when ZM stock peaked at $588.84, shares had gained over 730% in 2020.
Investors have watched their ZM holdings slip in value since then. Shares closed below $290 in May amid fears that re-opening would result in companies and schools abandoning Zoom.
Since bottoming out in May, ZM stock has been staging a quiet rally. Now trading above $360, it’s no longer looking like a steal. However, it remains well off even its 2021 high. And as it turns out, many of those fears about the effect of re-opening on Zoom are looking to be overblown. You may have missed out on the bargain days of May, but there’s still time to pick up shares in this Portfolio Grader “B” rated stock in time to enjoy considerable upside.
Zoom First Quarter: Blowout Earnings, But Expects Growth to Slow
Let’s start this investigation with Zoom’s fiscal 2022 Q1 earnings, which the company reported on June 1. Frankly, Zoom hit it out of the park.
Revenue of $956.2 million was up 191% year-over-year. There are now over 497,000 companies with 10 or more employees using Zoom, up 87% YoY. There were also big gains in large customers. Zoom says it now has 1,999 customers that have spent more than $100,000 in trailing 12 months revenue. That number is up 160%.
Adjusted earnings per share were $1.32, significantly beating the 98 cents that had been expected. Several days later, the company announced Zoom Phone Appliances. These all-in-one solutions developed with several hardware partners offer corporate customers an integrated voice and video solution — powered by (and optimized for) Zoom software, of course.
The bad news? Zoom projects the growth is going to slow. The company issued revenue guidance of $3.98 billion to $3.99 billion for fiscal 2022. Slowing is far from stopping, and these numbers are still impressive.
BofA Securities Rates ZM Stock a “Buy”
After Zoom’s first quarter, BofA Securities released a research note. Analysts were particularly interested in Zoom’s success in enterprise retention and expansion. Based on the customer base, they saw significant potential for the company to upsell — whether that was to higher tier price plans, additional products (like Zoom Phone Appliances), or both.
BofA reiterated its “Buy” rating for ZM stock. Its $480 price target offers 31% upside from the current share price.
Reopening is Not The Zoom Apocalypse
A big part of the pullback in ZM stock from its all-time highs has been a fear of the post-pandemic world. In particular, there was a fear that companies would bring everyone back into the office, schools would bring students back into classrooms and Zoom licenses would not be renewed.
Instead, the reality is proving to be a hybrid approach. Office workers spend part of the week in-office and part working from home. Many schools are maintaining a remote learning option, which offers more flexibility to students and could help eliminate time lost to “snow days” and other disruptions.
In an interview with Reset Work, Stanford University economics professor Nicholas Bloom explains the rationale:
“I would say 80% to 90% of firms are going for hybrid … There are advantages to in-person, which are creativity and innovation. There are advantages to remote, which are efficiency on individualistic tasks and saving commute time. And you say that there’s a trade-off there, but the answer is that hybrid, if it’s well organized, doesn’t make any sacrifices. It gets the best of both worlds.”
In a hybrid work (or learning) situation, tools like Zoom are just as important as they were during the pandemic.
Bottom Line on ZM Stock
Zoom was in the right place at the right time for monster gains in 2020. However, assuming that vaccinations and re-opening means the end of growth for the company is a reactionary and simplistic view. The company has a massive install base to work from while hybrid workplaces are shaping up to be the new normal. Zoom continues to supplement its core services with additional offerings like Zoom Appliances.
It may not be as cheap as it was in May, but ZM stock offers considerable upside, and attractive long-term growth potential.
On the date of publication, Louis Navellier had a long position in ZM. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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