- Zoom shares trading at close to December 2019 levels
- Growth is slowing but has kept going
- Valuation at large discount to other pandemic winners
Is Zoom Video Communications (ZM:NASDAQ) now a bargain? One of the pandemic’s superstar companies, the stock’s decline has been steep and deep since record highs of $559 in October 2020, losing 87% of its peak value as investors spurned growth companies.
Yet there are analysts that think the valuation is starting to look interesting against a backcloth of impressively consistent growth. ‘The company has somehow managed to keep growing despite the onslaught from Microsoft Teams and a likely reduction in video calls as the world transitions back to in-person meetings,’ said Megabuyte analyst Shekhan Ali, after the firm’s latest earnings report.
Zoom reported first quarter (to 30 Apr) earnings that handily beat estimates, thanks to cost-cutting moves. Zoom stock climbed as revenue also topped Wall Street targets even in the face of slowing growth. Earnings per share (EPS) rose 13% to $1.16 on a 3% increase in revenue to $1.105 billion. A year earlier, Zoom earned $1.03 a share on sales of $1.074 billion.
GROWTH SLOWING BUT STILL GOING
That’s the slowest quarterly growth on record for Zoom, although better than analyst consensus. Estimates had been pitched at $0.99 EPS on $1.084 billion sales, so a 13% and 2% forecast beat respectively.
‘I think the stock is paring gains on the implied guidance for enterprise, which suggests it will continue to decelerate to around 6% growth,’ said RBC analyst Rishi Jaluria.
The results ‘show revenues continuing to transition from online to enterprise, no surprises given Zoom’s latest contact centre and phone offerings looking to expand wallet share and reduce its reliance on video services,’ said Megabuyte’s Ali. Phone revenues are now worth more than 10% of the total, supported by an ‘expanded partner base, including in the UK.’
Zoom said enterprise sales to corporate customers rose 13% to $632 million, topping estimates of $621 million. To re-energise growth, the company aims to build a broader business communications platform using artificial intelligence tools.
For the current quarter ending in July, Zoom said it expects earnings of $1.05 a share at the midpoint of its outlook, in line with estimates. The company forecast revenue of roughly $1.13 billion versus estimates of $1.11 billion.
Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $396.7 million, compared to $501.1 million in the first quarter of fiscal year 2023.
HOW ZOOM COMPARES TO PANDEMIC PEERS
So where does this leave valuation, after the shares rough 3% gain overnight to $71.41? According to data from Koyfin, on a next 12 months EV/EBITDA of 9.1-times. EV/EBITDA is enterprise value as a ratio of earnings before interest, tax, depreciation and amortisation.
Zoom’s stock hasn’t been this low since December 2019, before many had even heard of Covid.
How does this compare with other pandemic winners? Streaming giant Netflix (NFLX:NASDAQ) currently changes hands at 22.2-times EV/EBITDA, based on Koyfin’s data, Amazon (AMZN:NASDAQ) on 14, microchip designer Nvidia (NVDA:NASDAQ) at 74.6.
