Zoom Stock: Buy, Sell, or Hold in 2022? The Motley Fool

However, Zoom has rapidly turned into a value stock that returns a respectable opencv introduction level of free-cash-flow growth. If Zoom can start monetizing some of the AI potential Ark Invest sees, it could inspire another bull market in its stock. Still, the bear estimate calls for a $700-per-share or less stock price, amounting to more than a 10-fold gain from current levels if that price target holds.

Zoom Video Communications Third Quarter 2025 Earnings: Beats Expectations

Rivals also include bundled productivity solution providers with video functionality such as Alphabet Inc.’s (GOOGL) Google G Suite and Microsoft Inc.’s (MSFT) Microsoft Teams. Other competitors are unified communications as a service (UCaaS) and legacy private bank exchange (PBX) providers such as 8×8 Inc. (EGHT), Avaya Holdings Corp. (AVYA), and RingCentral Inc. (RNG). Zoom’s valuation has surely contracted, but it’s still not desirable when observing the company’s peer group. Today, Zoom is trading at 31.6 times earnings, whereas top competitors like Cisco (CSCO -0.50%), Microsoft (MSFT -1.17%), and Alphabet (GOOGL 0.07%) (GOOG 0.12%) are trading at price-to-earnings multiples of 20, 31, and 24, respectively.

Valuation Measures

Zoom remains popular in workplaces, though its stock price has dropped considerably since the early days of the pandemic. Read on to find out how to evaluate Zoom stock and decide whether to buy. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. Here is a list of our partners and here’s how we make money.

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Zoom is also the focus of several ongoing federal investigations related to its dealings with Beijing, according to the Journal. Zoom’s latest fiscal year (FY) was FY 2021, which ended Jan. 31, 2021. For that period, the company reported net income of $672.3 million on revenue of $2.7 billion.

Zoom has provided investors with spectacular growth and returns in the past couple of years; however, I don’t see that continuing into the future. The pullback in pandemic-driven demand, in addition to increased competition from massive tech companies like Microsoft and Alphabet, will challenge Zoom’s business moving from here on out. With growth expected to hit the breaks in the years ahead, the company will likely become less attractive to investors who bought into Zoom’s growth story. There is one caveat worth mentioning — Zoom’s growth in the coming years is expected to let up significantly from current levels. As the pandemic unwinds and Zoom becomes a more mature company, it’s inevitable that sales growth will come down from its all-time highs. Analysts are forecasting Zoom’s revenue to come in at $7.7 billion in fiscal year 2026, indicating an average annualized growth of 13% from 2022 estimates.

Our estimates are based on past market performance, and past performance is not a guarantee of future performance. On the earnings front, Wall Street analysts are forecasting an average annualized growth of 28% over the next five years up to an earnings per share of $6.21 per share in fiscal year 2026. This is more favorable than Zoom’s expected top-line scenario, but many investors still might be hesitant to pay a lofty valuation for the company when taking into account the deceleration in growth. But profitability is just one factor investors should consider before buying a stock. Spend some face time with Zoom’s most recent annual report as well as its S-1 filing, both available on its investor relations website. These are a treasure trove of information about the company’s operations, financials, customers, case studies, leadership team, challenges and growth opportunities.

Zoom’s management also views international expansion as an important opportunity. Continuing the two-year comparisons, that number is up from Q3 2020, when international revenue was only 20% of total revenue. If Zoom can continue to grow internationally, it opens up plenty of new revenue opportunities. Because of this, it is helpful to take a look at Zoom’s performance as compared to 2019. After all, year-over-year comparisons in 2021 are review what works on wall street facing some awfully tough comparisons to 2020, when demand was at its peak.

Wood and her team predicted a $1,500-per-share price target for Zoom by 2026, a 22-fold gain from current levels. To buy Zoom stock, you’re going to need a brokerage account. (New to this? See how to open a brokerage account.) In short, you’ll want to look for a broker that has a low account minimum, no trade commissions and a user-friendly trading platform. Zoom makes money by selling its platform subscriptions to everyone from single users to companies with hundreds of thousands of employees. Unlike some other firms, Zoom went into its IPO as a profitable company.

• Between the AI tool and its expected growth in hybrid and remote knowledge workers, Ark Invest believes Zoom’s average revenue per user (ARPU) will grow by 26% yearly.
• Specifically, look at how diversified your portfolio is and what this new investment would mean for your asset allocation.
• One way to invest in Zoom and diversify at the same time might be to buy an index fund or exchange-traded fund.
• Still, the bear estimate calls for a $700-per-share or less stock price, amounting to more than a 10-fold gain from current levels if that price target holds.

More importantly, the growth in larger customers — those with more than 10 employees and those spending more than $100,000 in revenue — provides a large base to upsell new features and hardware options as Zoom’s offerings expand. One way to invest in Zoom and diversify at the same time might be to buy an index fund or exchange-traded fund. Index funds and ETFs track a market index and allow you to hold stock in hundreds of different companies within one fund. And there are a number of funds with Zoom among their holdings. If you’re still keen after doing some research, consider how Zoom stock would slot in among the rest of your portfolio. Specifically, look at how diversified your portfolio is and what this new investment would mean for your asset allocation.

Prior to founding Zoom, Yuan was avatrade broker corporate vice president of engineering at Cisco, and was a founding engineer and vice president of engineering for web and videoconferencing platform Webex. The U.S. government has been increasing its scrutiny of Zoom on several fronts. In 2020, the United States charged a China-based Zoom executive with conspiring to disrupt videoconference commemorations of the 1989 Tiananmen Square democracy protests.

Asking for a Trend host Josh Lipton breaks down the latest action surrounding these two stocks. To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend here. In addition to that, I don’t think Zoom is currently trading at an attractive-enough valuation — investors who are still excited about the stock may be wise to wait for a larger decline before considering an investment. Zoom’s future doesn’t look quite as bright as it once did. All successful companies find ways to keep expanding their business in order to create new revenue streams and remain relevant in an ever-changing world.

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