Is It Finally Time to Buy Zoom Stock?

Zoom Video Communications, Inc. (NASDAQ:ZM), once a stock market darling, has undergone a significant evolution that most investors haven’t fully absorbed.

Beyond the video calls that skyrocketed its popularity, Zoom is quietly pivoting into an all-encompassing communications platform, and its new features have the very real potential to become powerful growth catalysts.

It’s clear that Zoom is doubling down on enterprise solutions, workforce collaboration, as well as artificial intelligence. When you put them all together you end up with the potential for substantial revenues and earnings growth in the years ahead.

We explore the lesser-known reasons Zoom may well be setting itself up as a growth stock once again.

Zoom One & Zoom Phone’s Hidden Potential

Zoom One and Zoom Phone are set to reshape how enterprises use Zoom far beyond video conferencing.

Zoom One bundles meetings, chat, whiteboard, and phone into a unified package so that organizations can consolidate their communication tools.

Zoom Phone, meanwhile, has grown to over five million seats, a 100% increase from last year. The rate of growth is evidence that enterprises are adopting Zoom’s cloud phone services at a fast rate.

Given that the VoIP market is projected to grow by over 15% annually, this segment alone has the potential to provide a solid growth stream.

Zoom’s integration with leading Customer Relationship Management systems also makes it possible for businesses to merge communications with customer data, a powerful capability few investors realize could spark a transformation in Zoom’s business tool versus remaining simply a remote work app.

AI Integration & Smart Features to Drive Productivity

Zoom is also embedding artificial intelligence capabilities into its platform. For example, in recent updates, management introduced Zoom IQ for Sales, an AI-powered tool that analyzes sales calls to improve performance insights in a way that teams enhance their customer interactions.

This tool is a good fit for sales-heavy businesses and taps into a multi-billion-dollar market for AI-based analytics in sales enablement.

Zoom’s partnership with OpenAI also allows it to embed AI into features like automated meeting summaries, transcription, and intelligent analysis, so reducing the time teams spend on administrative tasks and improving productivity.

Put these all into the mix and you start to see a clearer picture of where the growth drivers will emerge.

Emerging Market in Healthcare and Education

Healthcare and education are also areas that Zoom plays but which many investors haven’t yet come to appreciate.

Zoom for Healthcare is HIPAA-compliant communication tool for medical professionals and has gained momentum as remote consultations become ever more popular.

Zoom is already seeing an increase among major healthcare providers who are looking to make telemedicine visits possible in a HIPAA-compliant way.

Similarly, in education there is some promise given that Zoom is seeing an uptick in adoption among schools and universities that have integrated the platform as part of their hybrid and online learning systems.

Education is potentially a massive market with high retention rates so there are lots of reasons to be optimistic here.

An Overlooked Revenue Driver Is Overseas

Most investors focus on Zoom’s North American market but the company’s international presence is worth casting an eye on too. The international top line was up by over 20% year-over-year.

Zoom is also making headway in markets across Asia, Europe, and Latin America. So far, international markets remain relatively untapped by Zoom, so as it localizes products while meeting regulatory standards in these regions, significant upside awaits.

Lastly, Zoom’s cloud infrastructure partnerships across Asia are highly competitive against regional players due to their latency rates and so it’s possible they company will win market share there too.

Are Zoom’s Number Looking Better?

Zoom’s top and bottom lines grew massively during the 2020-21 era with revenues and EPS soaring by 326% and 854.3% year over year, respectively, in fiscal 2021. The company’s momentum remained strong in the following year, as revenue and non-GAAP EPS skyrocketed by around 55% and 51.8%, respectively.

But, during its fiscal 2023, growth slowed massively from the meteoric figures seen during the peak years. Competition became problematic too for Zoom as people began to explore other platforms of communication and collaboration, which in turn affected the pricing and market share.

Another significant change was that many companies and individuals who embraced Zoom during the work-at-home era either decreased or completely abandoned it, thereby reducing its customer base and sales. Fiscal 2023 revenues rose by a mere 7%, and non-GAAP EPS fell to $4.37 from $5.07 in fiscal 2022.

In the last fiscal year, Zoom’s revenues rose by just by 3.1% year over year to $4.53 billion. Non-GAAP EPS came in at $5.21, an increase of 19.2% from the prior year.

In the most recent quarter, total revenue came in at $1.14 billion, a 3.2% increase year over year while EPS on a non-GAAP basis was $1.35 compared to $1.16 in the year-ago quarter.

For the full year, its revenue is expected to be between $4.61 billion and $4.62 billion. However, the company expects a drop in non-GAAP EPS to between $4.99 and $5.02.

Is It Finally Time to Buy Zoom Stock?

Fast international growth and new AI partnerships with Open AI are catalysts to believe it’s finally time to buy Zoom stock.

Analysts have an upside target of $76 per share while a discounted cashflow forecast puts fair value closer to $106 per share. 

With cash flows, growth and profitability all favoring Zoom now it’s quite possible that the future is going to look a whole lot brighter for shareholders than the past few years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.