Zoom Video Communications (NASDAQ:ZM) was a 2020 success story. The pandemic forced many companies to close offices, with employees working from home. Schools adopted remote learning. Video conferencing was key to these efforts. That paid off in spades if you happened to own ZM stock.
The concern has been that re-opening the economy will mean a return to pre-pandemic conditions. Worries that IT departments would cancel those Zoom licenses as workers returned to the office helped to drive ZM down 35% between mid-February and mid-May.
Shares have rallied since then. ZM stock is now up 30% since the dark days of May. That trajectory should continue because the end of the pandemic does not mean disaster for Zoom. Growth will be slow — especially compared to the frenzied pace of adoption as lockdowns started to take effect — but business and education learned from the 2020 experience.
Hybrid work arrangements are shaping up to be the real new normal. Most companies are preparing for the next pandemic (or other disaster). Zoom is a big part of their plans. Smart investors are adding it to their portfolio as well.
Covid-19 Is Transforming Operations for Many Companies
McKinsey & Company released a study that details why the Zoom bears are wrong. The pandemic didn’t just prove that workers could work remotely using tools like Zoom. Rather, they could be even more productive than in the office. Instead of ditching Zoom, companies are looking to make it a permanent part of their operations going forward. The next time we experience a massive disruption, they’ll be ready. Here’s the key quote from the study:
“The COVID-19 crisis has created an imperative for companies to reconfigure their operations — and an opportunity to transform them. To the extent that they do so, greater productivity will follow.”
The challenge for companies is to “move from reacting to the crisis to building and institutionalizing what has been done well so far.”
Far from dropping their subscriptions, look for companies to sign up for extended terms and even increase their expenditure as they adopt Zoom as part of their standard business suite. This movement will be a major catalyst for long-term ZM stock growth.
Hybrid: The New Normal
Take the idea that companies are being proactive in building up their IT infrastructure out of the picture for a moment. The case for Zoom is still strong.
That’s because the winding down of the pandemic doesn’t mean everyone is returning to the office as expected. Many companies have announced they are adopting a hybrid working environment. Workers will split their time between working in the office and working from home.
In addition, business travel is proving stubbornly resistant to resuming. There are a number of factors at play here. Companies are reluctant to give up the cost savings of reigning in business travel. There is also growing pressure to cut carbon footprints — and reducing air travel is an easy win on that front. Above all, thanks to tools like Zoom, the past year has proven that deals still get done.
Furthermore, it’s not just hybrid workplaces. Online learning using Zoom instead of being in the classroom isn’t perfect, but it proved invaluable during the pandemic. Many schools, colleges and universities are adopting a permanent hybrid learning environment. Doing so opens up access to students who are distant, lack transportation or have health issues.
Bottom Line on ZM Stock
ZM stock’s four-week rally shows that investors are starting to wake up to the reality of this tech company. The pandemic figures prominently in Zoom’s story, but after punishing ZM as re-opening began, the market is waking up to the fact that Zoom is here to stay.
Now trading just under $380, this Portfolio Grader “A” rated stock isn’t the bargain it was in May. However, despite four weeks of gains, it still remains well off its $444.51 close on Feb. 16.
If you’ve been considering adding this 2020 tech star with a long-term growth prospects to your portfolio, every day you wait it’s likely to cost you more.
On the date of publication, Louis Navellier had a long position in ZM. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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