The Zoom Video Communications (NASDAQ:ZM) stock price reached an all-time high of $588.84 last October. Amidst the lockdown, several companies used Zoom’s platform to connect to their customers, investors and employees. Undoubtedly, this brought more income for the company.
Although the Zoom stock price surged in 2020, it’s down over 11% since the start of 2021 and down by 21% over the last 12 months. So, is this a buying opportunity?
Zoom’s exploding stock price in 2020
Zoom is an easy and reliable cloud platform for video & voice chat, as well as content sharing. The company helps businesses and organisations to bring their teams together in a frictionless environment to get more done without needing to be in the same room. Naturally this proved to be exceptionally useful in 2020 when the pandemic forced the introduction of lockdown restrictions. That’s why Zoom’s stock price exploded last year.
Most customers are introduced as free users of its products and are later converted into paying subscribers. The company’s revenue largely depends on its ability to retain existing customers and attract new ones. And from what I can tell, it’s so far managing to achieve this.
Providing it can continue to do so, Zoom, in my opinion, looks like an exciting business to have in my portfolio. But let’s take a look at the numbers.
Overview of Zoom’s Financial Results
Zoom ended the second quarter of its 2022 fiscal year with $5.2bn in cash and equivalents. That certainly provides a good chunk of liquidity. And it was predominantly raised through operations. The company’s revenue grew by 54% year over year (YOY) to $1.02bn in Q2. The growth was driven largely by new customers.
Today the company serves over 500,000 customers, which has grown by 36% compared to a year ago. However, what I find particularly promising is the 131% growth in customers generating more than $100,000 in annual revenue, bringing the total to 2,278.
To me, this indicates that existing customers are clearly seeing value in the platform. And consequently are ramping up their spending. Overall, this led to an $82m increase in free cash flow. Needless to say, this is quite promising. So why has the Zoom stock price been falling?
A slow down in growth emerges
As the vaccine rollout progresses, the Zoom stock price starts to dwindle. There is mounting concern that the company won’t keep up with expected growth as the dependence on video conferencing starts to waiver.
What’s more, the level of competition has begun to mount. Companies like Microsoft, Google, and Cisco all offer rival platforms that have seen success. If these competitors can provide a better service, then the decline of Zoom’s market share may be accelerated.
For a high-growth stock, any sign of slowing down is not a welcome sight. So, seeing the Zoom stock price fall is quite understandable to me.
Is the falling Zoom stock price a buying opportunity?
Although the Zoom stock price hasn’t had a particularly great run so far this year, the underlying company appears to be doing quite well. At least, I think so. Therefore, despite the risks, I believe the fall in the stock price, is in fact, a buying opportunity for my portfolio.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
