Will Zoom Stock Bounce Back?

Will Zoom Stock Bounce Back? From the time it was founded in 2011 through late 2019, Zoom was just another tech company trying to compete with the market leaders. Heavy hitters like Google (GOOG), Cisco (CSCO), Microsoft (MSFT), and Facebook (FB) were the biggest players in video chat software for individual users and video conferencing for businesses. Zoom was barely on the map. 

Everything changed in early 2020.

COVID became a global disaster, the stock market crashed, schools and businesses closed, and entire states were under quarantine or stay-at-home orders. Individuals were isolated. Employees suddenly found themselves working remotely with little or no preparation, and most companies weren’t ready for the transition. 

In the midst of the crisis – just one year after Zoom’s April 2019 IPO – the Zoom app became one of the most popular pandemic-related tools available.

Families and groups of friends flocked to the app because it offered free calls up to 40 minutes long. As many as 100 participants could join at no charge, which made it the right choice for newly virtual events like weddings, birthday celebrations, and family gatherings. 

With all of the attention, Zoom stock rose dramatically, topping out at more than $530 per share in mid-October 2020. That’s an increase of approximately 765 percent since trading started. It has since drifted down a bit, though it stayed above $290 per share at its lowest point in 2021. Now investors are curious – is Zoom last week’s news, or will Zoom stock bounce back? 

Why Did Zoom Share Price Drop?

The reason Zoom stock dipped a bit is simple. In April and early May, the COVID vaccine was made available to everyone. Supply quickly outstripped demand, and within a matter of weeks, anyone who wanted a dose could get an appointment right away. 

Some Zoom investors – and a handful of analysts considering Zoom’s future – decided that it was time to sell. They determined that Zoom’s success was due to the pandemic alone and that the company’s popularity would begin to fade as life returned to some semblance of normalcy. 

Were they right? Is Zoom past its prime?

Maybe not.

Certainly, the company got a tremendous boost from the circumstances created by COVID, but the most recent financial reports indicate Zoom is just getting started.  

Zoom Still Adding Users At Furious Pace

For the three months ending April 30, 2021, Zoom had nothing but good news to share. That’s a critical period, as it marks a full year since the pandemic drove new users to the Zoom platform.

The quarter delivered another 30,000 users quarter-over-quarter, and the year-over-year results were even more promising. Enterprise users – those with ten or more employees – now total 497,000. That’s an 87 percent increase year-over-year. 

During the period ending April 30, 2021, revenue was up 191 percent year-over-year for a total of $956 million. The same period last year delivered just $328 million in revenue.

However, that’s not the most important piece of information shared by management during the earnings call. It was made clear that while Zoom won’t see the same dramatic rate of growth as it did over the course of the pandemic, it will still grow. That’s because the post-COVID normal doesn’t look much like 2019’s version of normal. 

Zoom’s full-year guidance for fiscal 2022 calls for total revenue growth of 50 percent – a range of $3.975 billion to $3.990 billion. Keep in mind that figure is upgraded from the guidance offered three months ago, and the increase is more than $200 million higher.

Yes, that’s slower growth than the 191 percent achieved over the past year, but everyone knew that year was an anomaly. Most industry experts believe that current share prices reflect the slowdown while still considering the more sustainable projections. 

Is Zoom Ecosystem The Secret Growth Lever?

Some of that optimism is based on Zoom’s continuous enhancement of its ecosystem. It’s not just a basic video conferencing platform anymore. Zoom is growing its services to include a marketplace, as well as the exceptionally popular “Zoom Rooms” for businesses. 

Perhaps more importantly, it is not sending these services out into cyberspace with vague hopes that companies will catch on. It has a robust training course known as the Zoom Certified Integrator Program. Integrators gain expertise in the planning, design, and deployment of Zoom Rooms in organizations of every size, then they ensure smooth, transparent implementation of the software for Zoom clients. 

Is Zoom Stock A Buy?

By nearly every measure, Zoom stock is a buy. Yes, share prices have fallen a bit in response to the rollout of COVID vaccines, but that’s not the end of Zoom’s story.

Zoom was already making waves in the world of video conferencing when the pandemic hit. COVID simply condensed the growth timeline that most analysts believe the company would have realized anyway. 

While it may not see the same triple-digit growth that occurred in 2020 over the next year or two, it is clear that Zoom has a strong foundation from which to continue its expansion. That makes Zoom stock a Buy. 

Zoom Security Lapse A Sign of Future Concerns?

Zoom has all of the hallmarks of a stock market winner, but experienced investors know there are no guarantees. Zoom’s recent history isn’t without challenges, any of which could pose future risk to the business and to shareholders. 

The primary risks of buying Zoom are those that face every tech company – in particular, the many ways cybercriminals breach software to cause disruption, steal data, and otherwise run amok. For a period, Zoom conferences were not properly secured, which opened the door for unauthorized parties to join calls uninvited and/or access sensitive data. The original problem has been resolved, but it’s only a matter of time before something new crops up. 

There is also the risk of competition. The Zoom brand has become far more recognizable in the past year, which gives the company an advantage, but Zoom is up against massive organizations.

Cisco (CSCO), Google (GOOG), and Microsoft (MSFT) all want to host the world’s video conferences, now that it seems video conferencing will replace most business travel. All three have the resources and expertise to mount a strong challenge to Zoom. If they succeed in taking back market share, Zoom shareholders will be negatively impacted.   

Will Zoom Stock Bounce Back?

Over the past year, Zoom built a moat that will be difficult – if not impossible – for competitors to penetrate. Specifically, because users communicate and collaborate through the platform, any decision to transition away from Zoom has larger consequences. 

Individuals and companies who have made Zoom-based connections would have to establish new communication channels with their contacts if they elected to switch. That’s complicated and time-consuming – two things no one wants to face when their current method is working well. 

That, added to the ongoing innovation and expansion of products and services, demonstrates that Zoom is poised for future growth. In other words, for those asking will Zoom stock bounce back, nearly everyone agrees that the answer is yes.  

---

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.