Zoom stock forecast 2025 – none:.Will Zoom Stock Keep Falling in 2022?
Panda Forecast’s Zoom stock forecast for predicts a modest 52% climb. FAQs. Will Zoom stock go up? Zoom stock continues to downtrend as. Investors seemingly want nothing to do with Zoom, and the stock is down more than 70% from its October peak. Is the stock doomed?
Zoom Video Communications Stock Forecast up to $ – ZM Price Prediction.
Net margin soared from 2. No wonder the company has beaten analysts’ earnings and revenue expectations consecutively for the past 11 quarters. Zoom’s growth is forecast see graph below to decline next year. These estimates are very similar to analysts’ growth forecast collated by Yahoo! Finance see table below , which projected a Source: Yahoo! To be fair to ZM’s management, they had been transparent with their own conservative view of the business prospects.
As early January , management cautioned through the annual report that:. Renewals of subscriptions to our platform may decline or fluctuate because of several factors, such as dissatisfaction with our products and support, a customer or host no longer having a need for our products, including any new customers or hosts that have subscribed to our services during the COVID pandemic that may subsequently reduce or discontinue their use after the impact of the pandemic has tapered, or the perception that competitive products provide better, more secure, or less expensive options.
Source: Annual Report. The stock started trading in a downward channel soon after, despite the next four quarters of earnings beat. Source: Finviz. Then, on the same day in the month of November , ten analysts dropped ZM’s price targets. Bank of America Securities led the charge with a To add to the downward pressure, “smart-money” has been dumping ZM shares for the past year. Source: Author’s own, using data from Morningstar. Many fund and institutional investors have sold off their ZM shares, and most of these liquidated all or most of their shares.
There are many competing web conference alternatives. Source: Statista. Source: Wallstreetzen. Besides the US, ZM also dominated the global web conferencing market with a whooping Source: Trustradius. Source: Zoom. A check on Android PlayStore confirmed that the ZM apps are well regarded, garnering at least 4 stars.
Source: Google Play Store. The company has a whole suite of products that they can upsell to their existing customers, to encourage them to upgrade to more premium offerings, including additional optional products that can be purchased as add-ons.
This is useful for smaller businesses owners who may not want to subscribe to the enterprise account but they want services for ad hoc events. Or there are services that companies can consider adding on after testing zoom for a while. And customers are biting. All the above demonstrates that customers are happy with the products and services, products which the company is continuously striving to improve, expand and enhance.
Zoom is also acquiring businesses with the potential to value-add their existing products, such as the Kites GMBH’s Machine Translation Technology that can help “break down language barriers and making seamless cross-language interaction a reality of everyday life”.
I can imagine having a video conference with someone who cannot speak in English but thanks to almost instantaneous and accurate translation of speech-to-text displayed as closed captions, we can still understand each other. ZM market dominance creates a network effect that forces their competitors like Google Workspace and Microsoft Teams to integrate ZM API into their own video conference interface in order to communicate with their clients who use Zoom.
Thus, instead of replacing ZM, competitors have to “use” ZM. Source: Zoom App Marketplace. Zoom is in great financial state. ZM has several hundred million users, and has decided to expand into getting advertising revenue from its free account users. With its dominant position both in the US as well as globally, this is the next natural step to take. This is huge, in my opinion. There are many successful companies that adopted a freemium business model to attract users, and after amassing a huge following, start selling advertisements.
Facebook, YouTube, Google are among the most profitable businesses on earth that used this model. ZM is starting this new revenue stream from a place of strength – it is already a cash flow positive and a consistently profitable company. Its only revenue stream now is centered around its subscription service and that is already highly profitable with gross profit margin of Once this new stream of revenue from advertisement enters its books, ZM will no longer be just a web conferencing platform but also a company that sell advertisements.
The additional revenue growth from the advertising business will go a long way to make up for the forecasted decline in EPS growth.
After all, with growth expected to decrease in , is ZM still a “growth” company that warrants a premium valuation? I will try to value ZM in three ways. This is the first of my back-of-the-napkin, quick-and-dirty valuation approach. I believe that starting a small position in ZM, say one-tenth the total amount you intend to invest in ZM at the current price is fine. Analysts think that ZM will grow Based on this calculation, ZM is overvalued.
Source: Author’s calculations, using the everythingmoney website. Two of the three different valuation methods used above suggest that ZM is currently slightly undervalued. Since then, revenue has grown in an approximately linear pattern, which we have used to predict future revenues. Source: Author’s work based on financial statements. This is a very cautious prediction since margins have been higher than that in the last two quarters.
The best model to estimate future expenses is a power function. You can see in the charts below that the function overestimates expenses in , but it is also true that these expenses have picked up perhaps in a delayed manner in , and are looking to come closer to that trendline.
Finally, if we calculate all these items for future periods with the functions from each chart and put them together, we have a year forecast of operating income or EBIT, which in the case of Zoom is pretty much the same , as you can see below:. In , so far, the YTD figure as of the second quarter is , so the forecast is not optimistic, at least in the short run.
Let’s take a look at Zoom’s balance sheet. If we classify assets and liabilities into net invested capital and net debt, where we classify cash and financial investments as negative debt, we see that the invested capital is actually very close to zero equal assets to liabilities , and actually negative since This means Zoom holds most of its equity in cash and investments.
The best correlation we found to predict future balance sheet size is the linear relation of Equity with revenue, as you can see in this chart:. Continuing this trend, and using the same proportion of invested capital and debt as at the end of as of January , we get the following simplified balance sheet forecast:.
To forecast net income, we have simply added income from investments what you can see in the table below as negative interest expense and subtracted income tax. As you can see, this predicts a slightly higher net income than Operating Income thanks to the income from financial investments. Now that we have forecasted earnings, we can talk about the PE ratio and how the stock price could evolve over the next years. The number of shares outstanding are derived from the share price of the previous year and the equity forecast we made earlier.
As you can see, shares would continue to dilute for a bit, but after the company could start reducing the number slowly with buybacks. The other method is Free cash flow. We have added the cash flow from changes in overall net invested capital which is minimal to the Net Income figure, to come up with a free cash flow forecast. Combine this with the same number of outstanding shares as before and we have a forecast of free cash flow per share for the next 10 years.
Our forecast predicts growing cash flows with a diminishing rate, best described by the function you can see on the chart below. For the cash flow valuation, we are going to assume perpetual cash flows evolving as per this trend.
If we look at the two methods used to value Zoom shares, we get a very similar return for the current price. The PE method calculates the present value of selling a share in for our forecasted share price applying a given discount rate. The FCF method calculates the present value of all future forecasted cash flows per share, also applying the same discount rate.
Both methods give a present value very close to the current price when applying a discount rate of This is not bad for a company that is growing fast, has a strong balance sheet and is actually highly profitable. The biggest concern with Zoom is that it will be crushed by the products of much larger tech companies, such as Alphabet Inc. My first issue with this line of reasoning would be that Meets and Teams were already well-established products before the pandemic, and yet at the time of need, they failed to garner the success of Zoom.
The latter offers a superior product and at a more competitive price. Some people argued that the freemium model would not work in the long run, but so far, the company has done very well upselling Meets and its other products. An interesting development in this regard is the fact that Zoom will be testing out ads on its free version.
The response to this has been mixed, and I am not quite sure what to make of it. Ads are a great way of gathering revenue from its free users, but can also hurt the current upsell model. One could read into this and say the company is deciding to do this because it predicts a slowdown in future revenues. In any case, I believe Zoom has a good product. This in itself acts as a moat, and although there are low changing costs, churn rates decrease noticeably with older clients.
The company is staying relevant and useful, which is why I believe that, ultimately, an acquisition is a much more likely scenario than a price war from the big boys. Zoom still has a great product, and even if the pandemic is over, video conferencing and what one might describe as “enterprise cloud connectivity” are two thriving markets.
Zoom has a profitable business model and at today’s price, offers a reasonable margin of safety. I rate Zoom a buy and will initiate a small position. We believe the greatest opportunities of the next decade will be in innovative technologies and cryptocurrencies, so this is where we focus our analysis. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.
The Digital Trend Marketplace. Source: Q Zoom has more than doubled its revenues compared to the three months ended July 21st, which was a time when most countries were in full lockdown. What’s Next For Zoom? Source: Investor Presentation Zoom Rooms is still in its early days, but it shows a clear path towards continued expansion, and indeed, it shows that Zoom has a lot of room pun intended to grow.
Operations Starting with revenues, we have split quarterly revenues between pre-pandemic and post-pandemic. Finally, if we calculate all these items for future periods with the functions from each chart and put them together, we have a year forecast of operating income or EBIT, which in the case of Zoom is pretty much the same , as you can see below: Source: Author’s work. Balance Sheet Let’s take a look at Zoom’s balance sheet. The best correlation we found to predict future balance sheet size is the linear relation of Equity with revenue, as you can see in this chart: Source: Author’s work based on financial statements.