Zoom Stock – Zoom Boom Done Soon? Valuation Overextended
2020’s COVID-19 pandemic saw many names rise to prominence during the government-mandated lockdowns, but one seemed to rise meteorically due to the massive cultural shift in work environments. Zoom Video Communications, Inc. (ZM) was ranked as one of the most popular workplace apps globally in 2020, as well as the top videoconferencing app. The question then lingers, does it still have room to grow? (See Zoom stock charts on TipRanks)
Spelling out his hypothesis on the matter, Matthew Harrigan of The Benchmark Co. wrote that although Zoom’s products are nearly ubiquitous in workplace culture and the company’s brand name has nearly become a colloquial verb, the stock’s current valuation already has as much growth baked in as possible.
Harrigan rated the stock a Hold, and did not provide a price target. He was bullish on the Zoom Phone service, which has doubled the company’s total addressable market, and was enthused about other endeavors such as Zoom Rooms for conferencing and OnZoom for online events.
While the five-star analyst admitted that Zoom’s market share could “defy skeptics” and continue to expand, he explained that in the short-term the stock’s “price action hinges on momentum and sentiment” and may not reflect the strides made by the company.
Harrigan went on to state that the estimates regarding Zoom’s forecasts and guidance only amount to “a feeble valuation backbone.” He was mostly concerned with the stock’s high price per share, arguing that a downward correction could provide for an attractive entry point for long-term investors.
The company is currently shifting its revenue dependence away from Meetings and more toward other monetization opportunities, such as Zoom Phone, video conferencing, and events. Moreover, Zoom’s long-term growth is subject to its ability to convert more customers away from other platforms and capture market share in the unified communications as service (UCaaS) industry.
On the upside, Harrigan described Zoom’s products as conveniently scalable, from “single users to Fortune 500 companies across all industries.” Furthermore, its software is easily integrated with big workplace platform names like Microsoft Teams, Slack, and Salesforce.
On TipRanks, ZM has an analyst rating consensus of Moderate Buy, based on 8 Buy and 11 Hold ratings. The average Zoom price target is $421.33, suggesting a potential 12-month upside of 16.40%. The stock closed trading Friday at a price of $361.97 per share.
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