Zoom stock analysis. ZM stock.
Give us a try: https://www.overlookedalpha.com
Zoom Video was one of the biggest beneficiaries of the pandemic. Between 2020 and 2021, revenue grew over 300% and the stock soared more than 600% taking the market cap to 160 billion. Since then, however, revenue growth has slowed to single digits and the stock price has come back to earth.
Today, the company has a valuation just over 20 billion. With 6 billion of cash and investments, and zero debt, the enterprise value is roughly 14 billion.
Revenue for the rest of the year is expected to come in at 4.47 billion which represents less than 2% annual growth.
Free cash flow looks good at just over a billion but net income has collapsed from a peak of 1.4 billion in 2022 to just 5.5 million over the last 12 months.
That means Zoom stock is now valued at 3.2 times revenue, 13 times free cash flow and over 4000 times earnings.
So why is the company reporting such a huge drop in net income? A major reason is stock based compensation which totals almost 1.4 billion over the last 12 months. That figure is now 30% of revenue.
A second reason is that the company has seen a significant increase in operating expenses.
Looking at the table you can see that R&D makes up 19% of revenue and G&A is 15% of revenue. Nothing strange there, but what is strange is that Zoom is spending 1.8 billion dollars on sales and marketing (40% of revenue) and it’s only achieving modest growth. In fact, sales and marketing spend was up 55% in the first quarter while revenue increased only 3%.
This suggests Zoom is spending a lot of money to keep existing customers on the platform and it’s a worrying sign when combined with the growth outlook.
#zoomstock #stocks #stockstowatch #investing
Give us a try: https://www.overlookedalpha.com
Zoom Video was one of the biggest beneficiaries of the pandemic. Between 2020 and 2021, revenue grew over 300% and the stock soared more than 600% taking the market cap to 160 billion. Since then, however, revenue growth has slowed to single digits and the stock price has come back to earth.
Today, the company has a valuation just over 20 billion. With 6 billion of cash and investments, and zero debt, the enterprise value is roughly 14 billion.
Revenue for the rest of the year is expected to come in at 4.47 billion which represents less than 2% annual growth.
Free cash flow looks good at just over a billion but net income has collapsed from a peak of 1.4 billion in 2022 to just 5.5 million over the last 12 months.
That means Zoom stock is now valued at 3.2 times revenue, 13 times free cash flow and over 4000 times earnings.
So why is the company reporting such a huge drop in net income? A major reason is stock based compensation which totals almost 1.4 billion over the last 12 months. That figure is now 30% of revenue.
A second reason is that the company has seen a significant increase in operating expenses.
Looking at the table you can see that R&D makes up 19% of revenue and G&A is 15% of revenue. Nothing strange there, but what is strange is that Zoom is spending 1.8 billion dollars on sales and marketing (40% of revenue) and it’s only achieving modest growth. In fact, sales and marketing spend was up 55% in the first quarter while revenue increased only 3%.
This suggests Zoom is spending a lot of money to keep existing customers on the platform and it’s a worrying sign when combined with the growth outlook.
#zoomstock #stocks #stockstowatch #investing
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NewsTranscript
00:00 Zoom video was one of the biggest beneficiaries of the pandemic. Between 2020 and 2021 revenue
00:07 grew over 300% and the stock soared more than 600% taking the market cap to $160 billion.
00:15 Since then however revenue growth has slowed to single digits and the stock price has come
00:20 back down to earth. Today the company has a valuation just over $20 billion. With $6
00:25 billion of cash and investments and zero debt the enterprise value is roughly $14 billion.
00:31 Revenue for the rest of the year is expected to come in at $4.47 billion which represents
00:36 less than 2% annual growth. Free cash flow looks good at just over a billion but net
00:41 income has collapsed from a peak of $1.4 billion in 2022 to just $5.5 million over the last
00:49 12 months. That means Zoom's stock is now valued at $3.2 times revenue, $13 times free
00:54 cash flow and over $4,000 times earnings. So why is the company reporting such a huge
01:00 drop in net income? A major reason is stock based compensation which totals almost $1.4
01:06 billion over the last 12 months. That figure is now 30% of revenue. A second reason is
01:12 that the company has seen a significant increase in operating expenses. Looking at the table
01:17 you can see that R&D makes up 19% of revenue and G&A is 15% of revenue. Nothing strange
01:24 there but what is strange is that Zoom is spending $1.8 billion on sales and marketing,
01:29 40% of revenue and it's only achieving modest growth. In fact sales and marketing spend
01:35 was up 55% in the first quarter while revenue increased only 3%. This indicates that Zoom
01:41 is spending a lot of money to keep existing customers on the platform and it's a worrying
01:46 sign when combined with the growth outlook. On the plus side Zoom has an excellent balance
01:51 sheet, nice margins and the company's ability to generate free cash flow means it could
01:55 become a worthwhile investment at the right price. The problem is that Zoom is still being
02:00 valued as a grave stock but growth isn't coming. Management is spending a lot on sales
02:05 and it's spending a lot on R&D but new projects like Zoom Phone are not particularly exciting
02:11 and they indicate a lack of innovation in the company. Technology is rapidly changing
02:16 and Zoom needs to up its game if it wants to stay relevant in the coming years. Ultimately
02:21 without that growth the valuation is likely to keep heading lower which is why I continue
02:26 to give the stock a negative rating but these are my personal opinions not financial advice
02:31 and I've got no position in this stock. For more detailed investing ideas make sure to
02:36 visit our website overlookedalpha.com