Stock Watch: What’s in store for Zoom Video Communications (ZM) this year?

For Zoom Video Communications, Inc. (NASDAQ: ZM), 2020 was a pivotal year when the video-telephony service provider became a surprise winner as the coronavirus pandemic changed the way businesses operate. It emerged as the preferred communication platform for many businesses and individuals after the shelter-in-place orders came.

Pandemic Winner

After retreating from last year’s record highs, shares of the Silicon Valley tech firm regained a part of the lost momentum early this year but the recovery proved short-lived. Analysts, in general, believe ZM has the potential to bounce back to the peak but recommend holding it, citing the uncertainty surrounding the future of remote work/study. For prospective investors, it makes sense to wait at least until the next earnings release.

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Read management/analysts’ comments on Zoom’s Q4 report

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Zoom’s remote communication services witnessed widespread adoption in the early days of the pandemic, giving tough competition to market leaders like Google (NASDAQ: GOOGL) Meet and Microsoft (NASDAQ: MSFT) Teams. The company is mulling strategic acquisitions going forward to take business expansion to the next level, leveraging its strong cash flow. The optimism can be largely attributed to experts’ forecast that the remote work/study trend would continue even after normalcy returns to the market, thanks to the convenience and flexibility it offers. In recent months, the number of high-profile customers grew steadily.

Risks Linger

But there are concerns that it might not be easy for the company to retain customers once schools reopen and employees re-start working from their offices, and the high churn rates underscore that. Also, Zoom’s resource-rich rivals, including Cisco (NASDAQ: CSCO) Webex, are aggressively ramping up their platforms, putting its market share at risk. The management’s outlook for the current year looks too optimistic, given the rapid improvement in the COVID situation amidst the vaccination drive and market reopening that could reduce the demand for video calling services.

From Zoom’s Q4 2021 earnings conference call:

“As the world emerges from the pandemic, our work has only begun. The future is here with the rise of remote and work-from-anywhere trends. We recognize this new reality and are helping to empower our own employees and those of our customers to work and thrive in a distributed manner. As companies begin their safe return to the office and reimagine their working models, Zoom is here to help, leading the transformation with an extensive and growing portfolio of offerings and product features.”

Multifold Growth

The company has posted stronger-than-expected financial results every quarter since going public more than two years ago, consistently improving the performance and generating record profit and revenue in the most recent quarter. Revenues more than tripled to $882.5 million in the fourth quarter, which translated into a surge in earnings to $1.22 per share. The impressive results and strong guidance set off a stock rally in early March. The company will be unveiling its first-quarter numbers on June 1, with market watchers projecting an increase in earnings to $0.98 per share on revenues of $904 million.

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Zoom Video Communications Inc. Q4 2021 Earnings Call

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Zoom’s stock closed the last session slightly above $300, after losing about 15% since the beginning of the year. Continuing the downtrend that started since peaking, the shares mostly underperformed the sector.