– Zoom (ZM) stock Forecast for –
There are two ways to make money in the financial markets. The first is to buy businesses with growing cash flow that can pay you dividends, execute share buybacks, and reinvest money in internal projects with a good return on equity. The second way, which many people find to be more fun including me sometimes , is to buy stocks that you can sell to others for more than you pay for them on hype. The first thing to know about Zoom has grown so fast that it’s hard to value.
That’s almost 5x growth in 1 year! The question for Zoom shareholders is whether the world has fundamentally reordered itself, or if the ubiquity of Zoom will be a relic from the pandemic. The fact that government-imposed lockdowns seem to have driven this revenue growth rather than user preference makes Zoom extremely tricky to value. Still trading for roughly 44x its sales, Zoom rivals the valuations of tech stocks in Instead, three things have to happen.
I’ll address the points one at a time. The ongoing shift towards work-from-home is natural and good. It’s societal madness to think that millions of people sit in traffic for an hour or more every day commuting to and from central business districts. It’s a massive waste of time and money, and to add insult to injury, commuting expenses are not tax-deductible. As for the second point, Zoom needs to be the best solution for work-from-home to earn its valuation.
Some concepts don’t work well with Zoom. For example, it’s nearly impossible for private colleges to justify their tuition for longer than the duration of the pandemic by doing online classes. Try teaching a bunch of year olds math on Zoom, and you have a recipe for nothing to get done at all. As such, at least some of Zoom’s customers are going to go away. Video chat is not necessarily the best format for many kinds of interaction, which caps Zoom’s total addressable market.
As for the third point, every tech company is getting in on the video chat train. This makes it much more difficult for Zoom to grow into its valuation, as much of the future growth they’re expecting could be funneled towards their competitors.
As competitors incrementally improve their products, Zoom’s ability to maintain high margins at scale is likely to come under increasing pressure, as other big tech companies do not need the gross margins that Zoom has for video chat to make sense for them. Competition is a tough thing! There’s an old joke that if you add up all of the market share projections from management teams in the same industry, then the sum will usually add to at least percent. Since mathematically there is only percent market share to go around, someone has to be wrong.
This is often true for IPOs and tech valuations as well, individually if you pick right you’ll make a ton of money, but both value investors and short-term momentum traders do better in the long run for the amount of risk they take.
On the fundamental side, Zoom does turn a profit, but its huge growth has come from external events that have created a surge in interest in the company. Given that their blistering revenue growth will be nearly impossible to sustain after the pandemic, the valuation is probably at least double its intrinsic value.
Zoom the company is likely to still be around and will have a fair shot at competing against the rest of big tech. I would expect more large secondary offerings , where Zoom sells stock to the public at prevailing prices and uses it to fund growth.
If used productively, secondary offerings help raise the floor of a company’s value if they take the money they get from shareholders and use it to build a cash hoard and invest in acquisitions.
Secondary offerings are likely to put pressure on the share price in the short run, however. I would predict at least 2 secondary offerings for Zoom in , as they are in the long-term interest of shareholders at this point. And if you do that, when you get all through, the value can be Salesforce CRM is paying about 28x sales for acquiring Slack WORK , that’s the best comparable house down the street for Zoom shareholders, so to speak, and probably still a little on the high side.
In the short run, momentum is working against them, and their revenue growth and profit margins are both going to see pressure from competition. The secondary offerings are likely to hurt the share price in the short run but help it in the long run, and I think Zoom’s management is making hay while the sun shines with their valuation.
A lot of things will have to go right for Zoom to be able to maintain its share price. I think it’s very likely that you can buy back in at a much cheaper price if you own Zoom once successive rounds of secondary offerings have worked their way through the system. Time will tell whether Zoom can find innovative ways to drive new revenue growth over the next years or whether they’ll fade into the background. If I held Zoom, I would sell the stock on account of the risk that you’ll permanently lose a chunk of your capital once the world realigns to the post-vaccine new normal.
Did you enjoy this article? Follow me for future research updates! I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Logan Kane How should investors think about Zoom’s valuation? The world needs to fundamentally and permanently shift towards work-from-home.
Zoom needs to be the best solution for work-from-home to be productive. What will be the future of Zoom? Is Zoom stock a buy or sell? This article was written by. Logan Kane. Author, entrepreneur and Texan. My articles typically cover portfolio strategy, value investing, and behavioral finance.
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Zoom stock projection 2021 – zoom stock projection 2021:. Zoom (ZM) stock forecast: Bargain opportunity or slippery slope?
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ZM Stock Alert: 8 Reasons Why Zoom Video Is Tumbling Today | InvestorPlace.Bloomberg – Are you a robot?
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Zoom investors also face the risk from increasing competition. On 2 December, software giant Microsoft introduced a new low-cost tier of its Teams communication service for small businesses. However, Zoom bulls view the recent downturn as a buying opportunity.
Third quarter revenue posted a 2. According to Reuters , as of 6 December, Zoom stocks scored a mean rating of 2. Past performance is no guarantee of future results. Always remember that your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money.
And you should never invest more than you can afford to lose. Zoom faces questions about its ability to deliver growth as pandemic-related tailwinds begin to wane for its stay-at-home video conferencing solutions.
There are no guarantees. Markets are volatile. You should conduct your own ZM stock analysis, taking in such things as the environment in which it trades and your risk tolerance.
And never invest money that you cannot afford to lose. The week ahead update on major market events in your inbox every week. Indices Forex Commodities Cryptocurrencies Shares 30m 1h 4h 1d 1w. Analysis Insights Explainers Data journalism. Market updates. Webinars Economic calendar Capital.