Zoom Video Communications Inc (NASDAQ:ZM) may be the most promising tech IPO to date. The fact that it’s actually profitable is certainly a contributing factor but not the only one that recommends Zoom stock. In addition to being net income positive, this San Jose-based communications company, has a lot going in its favor.
ZM has built a cloud-native platform from the ground up that enables face-to-face video experiences, connecting users across various devices and locations. Their goal? “[T]o make Zoom meetings better than in-person meetings.”
Their founder-led team of engineers has succeeding in building a platform that customers rave about and have solidified their name as a recognized market leader by industry analysts.
The growing base of satisfied customers attests to the user-friendly, high quality nature of the Zoom product; the customer NPS averaged over 70 in 2018, demonstrating that Zoom is indeed making customers happy.
Market Opportunities and Zoom Stock
Tech IPOs are all about addressable market size. It’s a major reason why Lyft Inc’s (NASDAQ:LYFT) still has a big following of bullish investors. If the pie is big, or better yet, if there are multiple pies that are all growing, a company has a better shot of simultaneously boosting revenues and increasing market share.
With an established customer base that is vocal about being pleased with the product, Zoom is off to a promising start in seizing a larger share of the video communication and collaboration market. This market extends beyond the workplace and includes integrated voice, chat and content sharing.
So, what is the total market size that Zoom is after here? According to estimates by IDC, in the segments that Zoom operates in (Hosted / Cloud Voice and Unified Communications, Collaborative Applications and IP Telephony Lines), the opportunity is valued at $43.1 billion opportunity in 2022.
There is also a broader opportunity than IDC estimates. The reasoning goes that once customers begin to experience the benefits of Zoom’s video-first communications platform, they are likely to spread the use of video communications. This means that Zoom has additional room and leverage to increase the penetration of video communications across a broad range of customer types.
While so far Zoom has been focused on the B2B market, a smart move given that corporations have deeper pockets than individual consumers, this communications platform can easily slide into the B2C world in the future.
The Bottom Line on Zoom Stock
The multi-billion dollar IPOs are the ones that snag the biggest headlines, but a big blockbuster IPO doesn’t necessarily mean a better investment.
Video communications may not be as exciting as artificial intelligence or disrupting multiple transportation industries, but it’s been reporting growth numbers that are incredibly exciting. Revenues have been more than doubling since 2017. They reported $60 million in 2017 and by 2019, they hit $330 million, representing a more than fivefold increase.
Sales & marketing expenses did increase substantially as well, but that’s necessary once you have a great product. Someone has to spread the gospel, and investments in that area are necessary. Take a look at the efficiency of Zoom’s sales model:
“For the fiscal year ended January 31, 2019, 55% of our 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing. These 344 customers contributed 30% of revenue in the fiscal year ended January 31, 2019.”
Overall, Zoom has demonstrated that it has been disciplined about financing activities and deployment of capital. They are in a growing business and have a first-in-class product that fundamentally changes how people interact.
Zoom stock is one to buy and hold.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
