ZM stock forecast: Growth slows but Q3 results beat predictions
It was one of the pandemic’s biggest successes, but life is due to get tougher for Zoom
- Key figures from the third-quarter report
- How has ZM stock fared?
- What should buyers take into account?
- Who are Zoom’s competitors?
- What do the forecasters say?
Few companies fared better than Zoom Video Communications (ZM) throughout the Covid-19 pandemic. The California-based teleconferencing platform went from a fairly successful unicorn to part of the pandemic lexicon in a few short months, increasing its daily meeting participants 30-fold and posting year-on-year revenue growth above the 360% mark.
The company's shares skyrocketed accordingly, nearly tripling in value between April and October. But despite these impressive gains, investor confidence has cooled-off somewhat recently. Increasing competition in the sector, coupled with lockdown restrictions being eased, pared back the Zoom share price forecast among analysts.
Can Zoom prove to be more than a Covid-19 stock? We dive into the key quarterly figures and look into the Zoom stock forecast.
Key figures from the third-quarter report
The bottom line exceeded both internal guidance and independent Zoom stock predictions by a healthy margin, as total revenues grew 35% year-on-year to $1.05bn. Although this is a strong figure in general terms, it pales in comparison to last year’s 367% growth rate.
Investors responded cautiously to this decelerating growth rate. Zoom's shares went south on 22 November, opening lower still the following day. At time of writing, ZM is 11.15% down day-on-day and continues to slump at time of writing, currently trading at $201.
Operating cash flow was marginally lower compared to the second quarter, driven by increased marketing and research and development expenses.
The all important earnings per share (EPS) figure was also better than expected, coming in at $1.11.
The quarterly results left the company feeling positive about its immediate future. According to Kelly Steckelberg, Zoom's chief financial officer, the company expects 2022 fiscal revenue to be in the range of $4.079bn to $4.081bn, which would mean 54% year-over-year growth, up from the August guidance of 51%.
Outlook for the non-GAAP earnings per shareis $4.84 to $4.85, based on 306 million shares outstanding.
How has ZM stock fared?
Zoom’s share price performance over the past couple of years traced the ebb and flow of global lockdown measures.
Zoom’s share value was actually flagging in the run up to April 2020, when it still remained a relatively small player in the world of video conferencing.
Come global lockdown, the chart proceeded to show continual and dramatic bull patterns, including a skyrocketing 40.7% closing price on 1 September.
Although bears cut this figure down somewhat, Zoom stock continued to climb. A 19 October peak of $588.84 represented a share price up more than sixfold compared to April's figures.
Despite more pronounced bearish dips in the following 12 months, moving averages still continued to rise, propelled by rising support and resistance lines clearly evident on the chart.
The market proceeded to behave erratically, likely as a consequence of highly volatile global circumstances, including scary bear runs which shaved almost a quarter off Zoom’s market price in March.
As the Delta variant of Covid-19 began to sweep across the globe, entrenching the popularity of working from home, so too did the popularity of Zoom, regaining some of its value.
But the 20-day moving average steadily declined throughout the second half of 2021, despite a subtle bump in early November, indicating a bearish advantage.
The shooting star pattern on 17 November foreshadowed a bearish advantage, dragging the price down 4.5% over the following two trading days.
This could suggest the continuation of a downtrend, but as always, this analysis is speculative and any possible projections are contingent on numerous factors. Be sure to check out our latest ZM stock price to stay informed.
What should buyers take into account?
Firstly, the possibility of an overvalued Zoom stock forecast estimation should be considered. Currently, Zoom’s price-earnings (P/E ratio) of 75 is high. While this is often taken as a sign that a stock is overvalued, it should also be mentioned that tech stocks typically have a higher-than-average P/E ratio compared to traditional industries.
As we can observe when tracing the recent ZM stock price history, market capitalisation is reactive to constantly changing global conditions. Will Zoom stocks once again climb should a fresh wave of lockdowns be imposed on major economies, or will it keep plummeting as people get back to the offices? That is the big question.
Any long-term investor would be advised to take into account the inflated P/E ratio, which could bite back in the long run.
Who are Zoom’s competitors?
Competition rapidly increased in this sector in recent years, yet Zoom remains by far the dominant market player.
Following its 2019 IPO on Nasdaq, Zoom remains a unique publicly traded entity. Video conferencing is largely its main driver of revenue, whereas competition in this space is mainly driven by the conglomerates Microsoft (Teams and Skype), Alphabet (Google Meet) and Cisco (Webex).
With a business portfolio heavily contingent on the precarious video conferencing segment, it is little wonder that Zoom is seeking to diversify its revenue streams. It has not been smooth sailing.
The announcement in July of Zoom’s proposed acquisition of the cloud-based customer service company Five9 failed to materialise. The deal fell through in October, not helped by the US Department of Justice’s investigations into the company’s China ties and supposed national security risks.
Elsewhere, Zoom recently announced plans to acquire Kites, a German company focused on real-time translation services. This could prove to be an attractive driver of user engagement.
Zoom could soon be competing against Ericsson, as the Swedish telecommunications giant recently acquired the cloud-based communications provider Vonage in a $6.2bn deal.
What do the forecasters say?
In the run up to Zoom’s Q3 financial results, CNN’s ZM stock forecast maintained a positive outlook. Consensus EPS estimate of $1.09 proved overly conservative, as did the sale forecast of $1bn against reported earnings of $1.05.
It remains to be seen what impact these disparities will have on CNN’s Zoom stock forecast for 2022, which currently projects a median price of $299.50, representing a 50.5% uptrend over 12 months, according to 22 analysts.
As such, the majority of polled investment analysts have a buy sentiment, being 14 against 13 suggesting to hold. One analyst recommends a sell strategy.
Regarding Zoom stock predictions at Yahoo finance, 23 analysts forecasted an EPS of $1.09, while the average revenue estimate was a bit higher at $1.02bn. A slightly higher price target of $370.43 is also given.
Collating the Zoom stock forecast among 27 investment advisors, 15 recommend a buy or strong buy strategy while 11 advisors suggest holding for now. One advisor recommends selling ZM stock.
Panda Forecast’s Zoom stock forecast for 2025 predicts a modest 52% climb.
Zoom stock continues to downtrend as investors are wary of slowing yearly growth. That said, many analysts have a 12-month target above current levels. Do keep in mind that this does not constitute comprehensive investment advice. Be sure to conduct thorough due diligence before investing.
That is a tricky question. Recently, Zoom has not fared as well as its 2020 bull run. Contributing factors include increased competition and easing lockdown restrictions. ZM is clearly downtrending at the moment. If you believe bulls can mount a defence, then it could be a good entry point.
Be sure to seek thorough investment advice before placing money on any shares.
That is up to you. If you believe the bulls can pull the current ZM stock up, then now could present a good entry opportunity. Be sure to conduct thorough research on the company’s forward plans and make an assessment accordingly.