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Zoom Has Growth Ahead and Durable Advantage So Buy Up

It’s fairly easy to suggest that Zoom (NASDAQ:ZM) stock has seen its best days. There’s a clear narrative which indicates share prices should continue to go down. With prices already at year-to-date lows though, I believe there are a few reasons to believe an inflection point is near. 

A woman sitting at a desk waves at a large number of people on the videoconferencing software Zoom (ZM).
Source: Girts Ragelis /

In other words, bullish investors could soon find a bottom. So let’s look at the bearish sentiment surrounding Zoom in an effort to understand why it may be wrong. 


Take a look at valuation metrics related to Zoom stock and it’s apparent that investors are willing to overpay.

That’s true from the perspective of the most commonly cited ratios including P/E ratio and price-to-sales ratio as examples. Indeed, Zoom does have a P/E and P/S ratios which are both in the lowest quintile compared to competitors. 

The idea is that Zoom became overvalued as a consequence of pandemic related tailwinds. More remote workers require the company’s software in order to keep their respective businesses humming. 

Thus, as we return to a post-pandemic world demand for Zoom should wane, and fervor around ZM stock should wane in kind. That’s the bearish case at least. 

But I don’t buy it. 

Wall Street is Quiet 

Investors who look to Wall Street for answers regarding the direction of Zoom stock are likely to be disappointed. It’s clear that they’re going to remain split in their opinions regarding the company. 

Three months ago they were evenly split in along buy and hold lines around Zoom stock. Three months later and the story hasn’t changed. They hold the same opinions on balance. 

I believe ZM stock is going up from here. 

Still Growing 

It’s clear that sellers have outnumbered buyers for ZM stock in 2021. That’s evident in the fact that share prices have declined by 25% year-to-date. 

What’s interesting is that Zoom has continued to grow during that period at an incredible pace. Quarterly revenues eclipsed the $1 billion threshold for the first time ever in the company’s latest reporting period. They were up 54% over Q2 ‘21 revenues. 

The same is true through the first half of 2021 as well. In fact, those figures are even stronger. The company’s revenues nearly hit $2 billion through the first six months of this year, up 99% over 2020 figures. 

The fear is that a bottom is going to fall out from underneath Zoom. But I don’t really think so. 

There’s two reasons I believe this: Competition and revenue projections moving forward.



It’s easy to point out that Zoom basically operates a video chat platform. So when you think of its competition Skype is probably the first firm that comes to mind. And if you look at other options they likely include Microsoft’s (NASDAQ:MSFT) Teams and perhaps Adobe (NASDAQ:ADBE) and its Connect service. 

But what other pure play chat platform stocks are there? Obviously Microsoft and Adobe don’t fall into that category with their Teams and Connect services. And Skype is part of Microsoft. 

Basically there aren’t any stocks of note that compete with Zoom in its niche. 

Sure, Zoom won’t be able to count on 2020’s triple digit growth as 2022 rolls around. 

But at the same time, don’t make the mistake of believing that Zoom is dying. Yahoo! Finance points out that Zoom is projected to rake in $4.02 billion in 2021 revenues. That might lead readers to believe that Zoom is limited to roughly $1 billion in quarterly revenues here on out. 

But the same projections also indicate that Zoom is on pace to reach $4.7 billion in revenues in 2022. 

What to Do 

In my mind that suggests that picking up ZM stock now makes a lot of sense. It sits at a YTD low but may have just hit an inflection point on Oct. 12. Revenue growth is ahead and I think investors will continue to be willing to pay handsomely for it, meaning increasing prices.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Article printed from InvestorPlace Media,

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