Despite intense competition and the easing of the COVID pandemic restrictions, Zoom Video Communications (NASDAQ:ZM) is still zooming. ZM stock? Not so much.
Zoom’s first fiscal quarter (April) results justified all the past faith that investors put into it. The company earned $227 million, 74 cents per share fully diluted, on revenue of $947 million. The fiscal quarter ended in April.
Revenue was up 191% from a year ago. The number of customers contributing $100,000 in revenue was up 160%. Almost a half-million companies with at least 10 employees now use Zoom, up 87%.
Zoom’s release highlighted a balance sheet with $4.5 billion in cash and securities on the books and no debt. Operating cash flow doubled year-over-year, to $533 million.
ZM Stock Stagnant
Investors seemed just lukewarm to the news, however. Webinars, chat and third-party applications also failed to boost the stock. Shares are flat, up less than 1%, since earnings came out on June 1.
A Bank of America (NYSE:BAC) analysis highlighted the opportunities in Zoom’s numbers. It said 43% of new revenue was in the form of “upsells,” like Zoom Phone, a cloud-based phone system that now has 1.5 million users. Zoom Phone competes with voice-over-IP services from Twilio (NYSE:TWLO) and RingCentral (NYSE:RNG), among others.
What should worry Zoom stockholders is the determination of the Cloud Czars to take this market. Microsoft (NASDAQ:MSFT) is now the second-leading provider of Unified Communication as a Service (UCaaS), writes Synergy Research. UCaaS replaces the old PBX with online or cloud-based solutions. RingCentral has dominated this market in the past but its market share, and that of every other major player’s other than Microsoft, is falling.
The Synergy report acknowledged that both Zoom and the UCaaS market have room to grow. “Market development is still in the early days in most other countries,” the report says.
In addition to Microsoft, Alphabet’s (NASDAQ:GOOGL) Google remains intent on this business. Every time I put a Zoom meeting on my calendar, Google tries to switch me to Google Meet. Amazon (NASDAQ:AMZN) has Chime. Cisco Systems (NASDAQ:CSCO), which launched the online conferencing market over a decade ago with WebEx, has its UCM Cloud Enterprise.
Making Virtual More Real
The growing competition has made Zoom cheaper on a relative basis. You’re now paying “only” 25 times revenue, and the price-to-earnings ratio is “down” to 117.
Even Zoom CEO Eric Yuan claims he is suffering from “Zoom fatigue.” Big employers like JPMorgan Chase (NYSE:JPM) are pushing employees back to their office desks. But Zoom continues to innovate. It’s launching a Zoom Events product that seeks to replicate live trade events. Given the cost of conferences in terms of salaries, plane tickets and hotels, this could gain traction.
Zoom is also rolling out an Immersive View feature for meeting hosts, to make online meetings look more like offline ones. The result to me looks like Microsoft’s Teams product.
The Bottom Line
Analysts continue to back away slowly from Zoom. Of 17 following it and tracked by TipRanks, eight now say just hold it and two are saying sell. This despite an average price target 18% ahead of where Zoom trades now.
Zoom is still a very expensive stock, with a market cap of $100 billion making it too expensive for rivals to justify buying outright. The reopening of the economy means there are brighter, shinier objects to buy out there. Competition from Cloud Czars and others, for whom even video conferencing is now just a feature in a larger sale, is intensifying.
Zoom may overcome all this, but ZM stock is headed toward value territory. Zoom peaked last October at nearly $560 a share. Investors are selling, taking their profits and moving on. New money should wait until Zoom provides real value before getting on board.
On the date of publication, Dana Blankenhorn held LONG positions in BAC, MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.