Will October be a good month for the Zoom share price?
The Zoom Video Communications (NASDAQ:ZM) share price has had a pretty rough year. And is now trading at half the price reported in October 2020. This downward momentum is starting to raise concerns amongst investors, especially given its stellar performance last year. So what’s going on? And is this actually a buying opportunity for my portfolio?
Strong but slowing growth
The company reported strong revenue growth in its second-quarter earnings report of its 2022 fiscal year. The problem is that this growth is slowing down. Revenue increased by 54%, versus a 355% last year. Double-digit growth is nothing to scoff at, but it seems investors were expecting more.
Despite this, the video conferencing company achieved its first billion-dollar revenue quarter coupled with solid profitability and cash flow.
In addition, Zoom is now a global brand with a huge clientele. The recent launch of the Zoom App has significantly enriched the user experience with new features and functionality to improve productivity. As a result, moving forward, I believe growth may begin to pick up again, taking the Zoom share price with it.
What’s next in the pipeline?
Zoom is bringing improved developer tools in the near future. The most recent one launched is Jumpstart. This new module is designed to accelerate the creation of apps that will further enhance user experience with Zoom Video. What’s more, the launch of a new video API is expected by the end of the year. This will enable other developers to integrates Zoom’s platform into their own applications. These will obviously need time to evolve. But I believe they will eventually become significant contributors to the bottom line. And, in turn, boost the Zoom share price higher over the long term.
What is expected of Zoom share price in October?
October started off with some disappointing news. Five9 announced the termination of their merger agreement with Zoom after shareholders rejected the takeover bid. Five9 is a leading provider of cloud contact centre software. Because the deal would be mostly paid with using Zoom stock, the recently Zoom share price seems to have spooked investors, resulting in the cancellation. But the company has started to bounce back after announcing that it will be launching its own contact centre solution in 2022, called Zoom Video Engagement Center.
Even though this seems like a wise step, I believe establishing a contact centre platform takes time. And so, I think it’s quite likely to see the Zoom share price continue to be volatile in October and over the next couple of months.
I believe this slump in Zoom share price isn’t too unexpected. After the initial spike in demand and explosive growth in the user base, growth had to slow at some point in time.
Now that the work environment is starting to resume its old patterns and the investor excitement cooled down, the Zoom share price is returning to a more reasonable valuation.
However, the user base is still growing. And with a clear timeline of new product and feature launches, the stock may soon start climbing again.
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Covid-19 has devastated the global markets. But this stock has been thriving and has doubled its revenue for the last five years, even in 2020! What's more, due to the recent volatility in the stock market, The Money Cog analysts feel the stock is grossly undervalued.
Needless to say, I believe it's a fantastic business that could become an industry leader in the future!
Saima Naveed 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.