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Zoom (ZM) stock forecast: Bargain opportunity or slippery slope?

By Mensholong Lepcha

Edited by Alexandra Pankratyeva


Updated

Zoom sign, logo on headquarters facade. Zoom Video Communications company provides remote video conferencing services using cloud computing. - San Jose, California, USA - 2020
Zoom (ZM) stock forecast: Bargain opportunity or slippery slope? – Photo: Shutterstock

Zoom has been used extensively during the Covid-19 pandemic. Lockdowns and the need to work from home helped stock in the video conferencing service surge by over 400% in 2020.

As economies opened up in 2021, Zoom stock fell out of investor favour, losing 48% of its value year-to-date, as of 6 December.

Will Zoom stock overcome this recent downturn? Let’s read more about Zoom share predictions.

Zoom (ZM) stock all-time performance

The origins of Zoom

Zoom Video Communications was founded in 2011 by Eric Yuan, who remains its chairman and chief executive. The video conference platform attracted one million users by 2013. The startup gained unicorn status in 2017, although it didn’t yield any profit until 2019.

Based in San Jose, California, the company went public in April 2019. Its market cap reached $16bn after one day of trading. Its current market cap stands at $54.80bn, as of 6 December.

Zoom stock news and major price drivers 

Zoom stock closed at an 18-month low of $183.92 on 3 December. The stock has fallen by over 68% from its record high of $588.84, hit on 19 October 2020.

Investors are worried about Zoom’s ability to grow as tailwinds fanned by the pandemic begin to wane.

In 2021, Zoom’s biggest intraday falls followed earnings results.

On 31 August, Zoom stock fell 16.7% a day after the release of its second quarter results. On 23 November, Zoom saw its second worst day of the year as stock prices dropped 14.7% after its third quarter results. Similarly, Zoom stock fell 9% on 2 March after its earnings for its full year were announced.

On 30 September, proxy advisor company Institutional Shareholder Services (ISS) recommended shareholders of cloud contact centre operator, Five9, reject an $14.7bn all-stock takeover by Zoom on growth concerns.

"The all-stock deal exposes Five9 shareholders to a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment,” ISS said according to a Reuters report.

The US Department of Justice (USDOJ) also weighed in on the Zoom-Five9 deal. In a letter dated 27 August, it asked the Committee for the Assessment of Foreign Participation to assess whether the deal posed a risk to “national security or law enforcement interests of the United States”. Eventually, the multi-billion-dollar merger was mutually terminated by Five9 and Zoom.

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. Zoom stock fell as much as 7% following the news.

However, Zoom bulls view the recent downturn as a buying opportunity. It was reported that renowned stock picker Catherine Wood’s Ark Innovation ETF bought 538,573 of Zoom shares on 23 November amid an intraday price drop of 14.7%. Meanwhile, the Ark Next Generation Internet ETF acquired 106,537 Zoom shares.

“To me, (Zoom) is a reasonable bet,” Ryan Koontz, managing director of Needham & Company, told Capital.com on 24 November. “I’m certainly more positive on the stock down here (at the current price level) than I was over the past year.”

Zoom (ZM) stock year-to-date performance

Zoom stock analysis: Latest earnings

In its latest quarterly results, Zoom posted a 35% year-on-year increase in total revenue to $1.05bn. Third quarter revenue posted a 2.9% gain compared to the preceding quarter.

Third quarter net income attributable was $340.3m compared to $198.4 a year earlier and $316.9m in the second quarter.

Basic net income a share attributable came in at $1.14 in the third quarter of 2021 compared to $0.70 a year ago and $1.07 for the second quarter.

Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $374.8m compared to $388.2m a year ago.

A key metric for the Zoom stock is that customers with more than 10 employees rose 18% from a year ago to 512,100 during the quarter ended 31 October, 2021. 

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That metric rose 36% year-on-year to 504,900 customers in the second quarter of 2021.

“Looking forward, we expect to close the year between $4.079 to $4.081 billion in total revenue, representing approximately 54% year-over-year growth, alongside strong profitability and operating cash flow growth,” said founder and chief executive of Zoom, Eric Yuan.

In the previous fiscal year ending 31 January 2021, Zoom had posted a revenue growth of 326% year-on-year to $2.65bn.

Zoom stock price forecast: analyst sentiment

“Sadly for investors, this rate of growth represents a massive slamming on of the brakes after the pandemic sent its customer count soaring,” said Peter Cohan, lecturer of strategy at Babson College, in his feature piece for Forbes.

“The safest way to value stock is to look at year-over-year revenue growth and earnings growth and, in this case, it’s really hard to do that – because last year at this time, Zoom created the most difficult year-over-year comparison that I’ve known in my investment history,” Koontz told Capital.com.

 “Last year, they were putting up almost 400% year-over-year (revenue) growth, which is unheard of in any business.

“We remain impressed by Zoom’s ability to over-deliver simultaneously in terms of both growth and margins,” said Dan Romanoff, senior equity analyst at research firm Morningstar post Zoom’s third quarter results in late-November.

“We see a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a unified communication platform with the recent chat launch and the pending release of video engagement center.”

Zoom (ZM) stock forecast: analyst price targets

Is Zoom (ZM) stock a ‘buy’, ‘sell’, or ‘hold’? According to Reuters, as of 6 December, Zoom stocks scored a mean rating of 2.31 points out of a total of 3, from a survey of 32 analysts. On a linear scale, a rating of 1 means ‘sell’, 2 ‘hold’ and 3 ‘buy’.

Morningstar, in its latest report on Zoom stock, raised its fair value estimate to $260.

According to the Wall Street Journal,15 out of 30 analysts rate Zoom stock ‘buy’ or ‘overweight’, 14 rate it ‘hold’ and one rates it a ‘sell’, with an average target price of $304.18.

Marketbeat said: “According to analysts' consensus price target of $322.57, Zoom Video Communications has a forecasted upside of 75.4% from its current price of $183.92.”

According to the latest analysts’ ratings and Zoom stock price targets from November, compiled by MarketBeat , the majority lowered their price targets for Zoom. However, ​​Robert W. Baird’s William Power boosted his target from $300 to $335.

Zoom (ZM) stock analyst price targets and ratings

As of 6 December 2021, Wallet Investor shared a bearish Zoom share price forecast, noting: “If you are looking for stocks with good return, Zoom Video Communications Inc - Class A stock can be a bad, high-risk 1-year investment option.” Its one-year Zoom stock forecast stands at $19.403.

It expects the price of Zoom stock to plunge to $0.0221 by the end of December 202 and hit $0.000001 by the end of 2023.

GovCapital predicts Zoom stock could start 2022 at an average price of $166.063 and end it at $823.177. The provider predicts that ZM could rise to $1,672.114 a share by the end of 2023 and to as much as $3,907.493 by the end of 2025.

Although the service does not provide Zoom stock forecasts for 2030, its longer-term 5-year ZM prediction suggests the price to reach $5,284.148 in December 2026.

When looking for Zoom stock predictions, it’s important to bear in mind that analysts’ forecasts can be wrong. Analysts’ projections are based on making fundamental and technical studies of the stock’s performance. Past performance is no guarantee of future results.

It’s important to do your own research. 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.

FAQ

Is Zoom a good stock to buy?

According to the Wall Street Journal, as of 6 December 2021, 15 of 30 analysts rate Zoom stock ‘buy’ or ‘overweight’, 14 rate it ‘hold’ and one rates it a ‘sell’, with an average target price of $304.18.
However, Wallet Investor said: “If you are looking for stocks with good return, Zoom Video Communications Inc - Class A stock can be a bad, high-risk 1-year investment option.”

Why is Zoom stock down in 2021?

Zoom faces questions about its ability to deliver growth as pandemic-related tailwinds begin to wane for its stay-at-home video conferencing solutions. The stock has dropped over 48% year-to-date, as of 6 December.

Will zoom stock go up?

A number of factors dictate whether stock prices rise or fall, including the company’s fundamentals and broader macro-economic factors. 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.

Read more: Netflix (NFLX) stock forecast for 2025: End to cable TV?

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
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