Will Zoom Stock Ever Recover?

Zoom’s (NASDAQ:ZM) biggest competition these days came when Microsoft Corporation (NASDAQ:MSFT) upgraded its Teams communication tools. Teams has now become Zoom’s main competitor in the business world. 

Microsoft has successfully enhanced its Teams video conferencing platform through the use of advanced AI technology from OpenAI. It’s a formidable threat to Zoom, but Zoom shareholders aren’t without hope.

In response to the looming risk from Microsoft, Zoom is adding its own generative AI tools to keep existing customers engaged and bring in new ones. 

Zoom recently announced that it would provide its AI Companion to clients without any additional cost, a crucial revenue decision. Features of AI Companion include automated summaries of meeting chats and recordings. These tools are intended to improve the user experience and strengthen their loyalty to Zoom’s products and services.

Zoom is working to increase AI tools and capabilities for its business communication platform but for investors the big question is whether those efforts will result in shareholder returns. In other words, is Zoom stock a buy and will it ever recover to former highs? 

Is Zoom Now The Most Secure Video Platform?

In May, Zoom announced that it now offers post-quantum end-to-end encryption (E2EE) for Zoom Workplaces worldwide to protect Zoom Meetings from cyber threats.

This move makes Zoom the first UCaaS company to offer such high-level security in video calls, setting a new standard for the industry and enhancing Zoom’s reputation for security. This sophisticated tool will soon be available for Zoom Phones and Rooms. 

Zoom is also expanding access to its AI teamwork tool, Zoom Workplace. It was integrated with AWS Marketplace in March. This step makes it simple for users to discover, test, purchase, and install software on Amazon Web Services, which is expected to help Zoom attract more customers and increase its market presence.

In addition to best-in-class security and expanded access to Zoom Workplace, Zoom and Avaya announced a partnership aimed at providing improved collaboration experiences for global businesses.

Avaya chose to integrate Zoom Workplace with its Communication & Collaboration Suite, creating an easier process for handling communications. This partnership was largely designed to strengthen Zoom’s enterprise appeal.

In addition, Zoom introduced a new tool called Zoom Compliance Manager that was developed as a comprehensive solution for keeping records, finding electronic evidence (eDiscovery), complying with legal holds, and protecting information. It gives companies a simple, easy way to meet legal and regulatory requirements, reducing the risks associated with non-compliance while still keeping communications secure. 

In short, the many advanced tools and platform improvements Zoom has already developed and continues to explore are successfully supporting Zoom clients with improved security, greater market reach, and beneficial partnerships.  

Revenues Rise Just Slightly

For the first quarter of FY 2025, Zoom reported a revenue rise of 3.2% over the previous year, reaching $1.14 billion total.

Gross profit also grew by 3.2% as compared to the same period last year, hitting $867.93 million.

The company’s non-GAAP income from operations increased by 8.1% compared to the same quarter last year for a total of $456.60 million.

Non-GAAP net income and non-GAAP net income per share were reported as $426.32 million and $1.35, respectively, reflecting improvements of 20.7% and 16.4% from the previous year’s quarter.

Total current assets came in at $8.28 billion, an increase from the $7.93 billion reported in the prior quarter.

Zoom Stock Guidance

Management indicated that total revenue is expected to come in somewhere between $1.145 billion and $1.150 billion for the second quarter of FY 2025.

Non-GAAP income from operations will likely fall between $415 million and $420 million. Zoom’s non-GAAP EPS is forecast to be $1.20 or $1.21, with about 316 million weighted average shares in total.

Zoom leadership also discussed guidance for the full fiscal year. Full-year revenue is projected to fall between $4.61 billion and $4.62 billion for FY 2025.

Non-GAAP income from operations should come in between $1.74 billion and $1.75 billion. Non-GAAP EPS is expected to land between $4.99 and $5.02, with about 319 million average shares outstanding.

The company has a trailing 12-month gross profit margin of 76.18%, a figure that is quite a bit higher than the industry average of 49.54%. The trailing 12-month EBITDA margin of 18.09% is almost double the industry average of just 9.76%. Meanwhile, net income margin is 18.37%, far eclipsing the industry average of 2.81%. 

Will Zoom Stock Ever Recover?

Absent massive revenue and earnings growth, Zoom stock is unlikely to ever recover to the share price levels seen at its peak in 2021. Competition from Microsoft has largely stifled Zoom’s ability to win market share, and improved features from Teams, such as generative AI support have further quashed fast growth rates.

In spite of high gross margins of 75.5% and an abundance of cash last reaching $1.5 billion plus $5.98 billion of short-term investments, the buzz from a few years ago dimmed and is unlikely to repeat anytime soon. Now Zoom will need to climb higher based on fundamentals, and currently they simply don’t support the lofty levels once enjoyed by shareholders.

---

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.