Zoom's Growth in the Pandemic: A Closer Look

Zoom Video Communications, the world's fastest-growing technology company during the pandemic, experienced a significant surge in its business. In fact, it achieved three consecutive quarters of impressive growth, surpassing the 355% mark. However, as the global economy reopened, the company encountered a decline in its boom days. Despite this setback, Zoom has been actively diversifying its offerings to expand beyond its flagship web meeting service. The company now provides software for contact centers, webinars, chat, email, and even incorporates new artificial intelligence tools.

Unfortunately, Zoom's efforts to leverage these new avenues for growth have yet to yield substantial results. As it stands, the company is likely to report its sixth consecutive quarter of single-digit revenue growth in its upcoming financial announcement.

It is evident that investors and traders are increasingly concerned about Zoom's recent slowdown in growth, as reflected in the performance of Zoom stock (ticker: ZM). Year to date, the stock has dipped approximately 5%, with a 4% decrease following the last reported financial results.

Looking ahead to the October quarter, Zoom anticipates revenue ranging from $1.115 billion to $1.2 billion, alongside non-GAAP profits ranging from $1.07 to $1.09 per share. According to consensus estimates tracked by FactSet, analysts project a 1.5% increase in revenue to $1.119 billion and earnings of $1.08 per share.

Moving on to the fiscal fourth quarter ending in January, market expectations predict revenues of $1.129 billion, a modest 1% growth compared to the previous year. Furthermore, anticipated profits for this period are estimated at $1.09 per share.

As for Zoom's long-term outlook, the company's forecast for the fiscal year ending in January 2024 reveals its expectations of a 2% revenue increase, with figures ranging from $4.485 billion to $4.495 billion. Adjusted profits for the same period are projected to be between $4.63 and $4.67 per share. In line with these forecasts, consensus estimates propose revenue of $4.492 billion and earnings of $4.68 per share.

While the introduction of new services could potentially drive growth in the future, Zoom now faces intensified competition, particularly from Microsoft Teams, which comes bundled with Office. This heightened rivalry in the market poses additional challenges for Zoom to navigate moving forward.

In summary, it is clear that Zoom's position as a rapidly growing technology company has encountered some turbulence due to economic conditions. However, the company continues to strive toward diversified growth opportunities while being mindful of the competitive landscape it operates within.

Zoom Faces Challenges as Investors Await Confidence in "Online" Business

In a recent research note, Morgan Stanley analyst Meta Marshall highlights the importance of investors gaining confidence in Zoom's "online" business. During the pandemic, smaller customers flocked to the platform, but their impact on the company's stock remains uncertain. Marshall maintains an Equal Weight rating on Zoom shares.

Another area of concern that Marshall raises is when Zoom's new products will spark a reacceleration in its enterprise business. Additionally, Marshall wonders when Zoom will utilize its strong balance sheet to make strategic acquisitions. Currently, Zoom holds $6 billion in cash and short-term investments, amounting to approximately 31% of its market capitalization.

Marshall believes that none of these issues will be fully resolved by the October quarter results.

On the other hand, Citi analyst Tyler Radke, who has previously been bearish on Zoom shares, recently upgraded his rating to Neutral from Sell. Radke believes that the stock is now trading at near trough multiples. He is eagerly waiting for signs of business stabilization, citing surveys that suggest a possible easing of the headwinds, with web traffic declines showing signs of moderation. However, Radke acknowledges that Zoom still faces significant risks, particularly the competitive threat from Microsoft (MSFT).

Contrary to Radke's concerns, Baird analyst William Power, who maintains an Outperform rating on Zoom shares, believes that the company's enterprise business performed better than its online segment during the quarter. Power suggests that the company's new AI features may have contributed to this success.

"We believe this stock holds long-term value for investors," stated Power, emphasizing the potential catalyst of accelerating revenue.