Should I Buy Zoom Video Communications (ZM)? Finance YouTuber Analysis

The YouTuber suggests avoiding high-growth tech stocks such as Zoom Video Communications because their valuations are largely based on distant future profits. Higher interest rates reduce the present value of these future earnings, making these stocks particularly susceptible to downturns.

“And that is why you see names like Nebas Group and Zoom Video Communications get hit so hard when those interest rates rise. It's not just about their business. It's about how those future earnings are valued today.”

The YouTuber recommends Zoom Video Communications, noting its universal use in video conferencing and potential for hidden growth through monetization of its free user base. He points to 47% sales growth over the last year, 126% annualized over three years, and progressively improving profitability, suggesting it might be finding a bottom after recent tech sell-offs.

“I think there's hidden growth here that's not reflected in the forecast if the company can just figure out figure out how to better monetize those free users.”

The YouTuber identifies Zoom as a long-term growth pick, comparing its potential to early Facebook. He believes the market underestimates its future revenue potential, especially if it monetizes its large free user base, despite current forecasts for slowing sales growth and falling earnings.

“Zoom Video Communications ticker ZM didn't invent video conferencing but it has definitely taken the lead in that area and has become the norm”

The YouTuber suggests Zoom, noting its significant drop from peak prices makes it an attractive value. He highlights its continued revenue growth (35% in the most recent quarter) and increasing number of large customers, believing its growth potential will drive it higher long-term.

“this stock is trading in oversold territory and with the growth it should help it take it higher over the long term”

The YouTuber places Zoom in the 'wild card' category, noting its stock has risen due to investments rather than underlying business strength. He believes it is not a good deal at its current valuation.

“I don't think that Zoom is is a pretty good deal right now at this point.”

The analyst believes Zoom is deep in value territory due to its strong balance sheet, holding over 25% of its market cap in cash and no debt. This cash provides optionality for acquisitions in a slowing tech market and generates significant interest income, making it an attractive investment despite slowing revenue growth.

“I think it's really deep in value territory and that's why I have it on my short list right now.”

The analyst believes Zoom is undervalued, with over 25% of its market cap in cash and strong customer retention, especially with enterprise clients. Despite pandemic-related concerns, the company is profitable, growing its contact center business, and has significant cash to deploy for acquisitions or internal growth, making it a compelling valuation.

“I think this is a compelling valuation for this stock right now.”

The analyst argues that Zoom's shift to an enterprise solution, evidenced by a 31% increase in remaining performance obligations (RPO) and longer contract durations, indicates future revenue stability despite current single-digit growth. The decline in consumer revenue is masking strong enterprise growth, suggesting a brighter future than the market currently perceives. The stock is also trading at its cheapest valuation since becoming a public company, at five times sales.

“trading at five times sales is cheapest valuation since it's been a public company I think that you look at Zoom here”

This creator believes Zoom is well-positioned to capitalize on the shift to hybrid work environments and the growing AI productivity trend. They highlight Zoom's strong infrastructure, enterprise readiness, data advantage for AI model training, and independence from larger ecosystems like Microsoft as key competitive moats. The firm projects significant growth in Zoom's monetization through new offerings like Zoom United Pro and AI-powered productivity tools, such as Zoom IQ for sales teams, which they believe will substantially increase average revenue per user.

“we believe zoom is the fabric connecting global enterprise communications and the future of work”

Cathie Wood believes Zoom is being unfairly dismissed as a 'stay-at-home stock'. She highlights its six-and-a-half-fold revenue growth since the pandemic, high gross margins in the low 70s, and its potential to be a key player in the enterprise communication space. She sees it benefiting from a 'rip and replace' cycle in enterprise communications.

“Zoom's revenue sorry is up six and a half fold uh since the beginning of the coronavirus... becoming one of the most important companies we believe in the enterprise communication space.”

Cathie Wood views Zoom as the 'new fabric' of enterprise communications, leading the transformation of the $1.4 trillion global tech stack. She believes Zoom has the best technology and is well-positioned to win in this 'winner-take-most' market, especially with the shift to hybrid work models.

“we really do believe zoom is the new fabric which is pulling together the new communications ecosystem enterprise communications... we believe zoom it has the best technology and has the best shot at winning at winning this winner take most game.”