The sell-off of shares of Zoom Video Communications Inc. may have gone too far.
The sell-off of shares of Zoom Video Communications Inc. may have gone too far.
That’s the message from Matthew Harrigan of Benchmark Co. and other analysts, who say the video conferencing company is well-positioned as a hybrid service provider after fueling the stay-at-home boom. And with stocks down nearly 85% from their 2020 pandemic peak, wiping out about $135 billion in market value, they see a potential upside.
“Fixing on Zoom as a Covid pandemic lockdown aberration is exaggerated,” Harrigan said in a note to clients previewing first-quarter results to be released after US markets close on Monday. as global technology and financial companies realize the permanence of combined work. .
Most large companies now offer employees the flexibility to work both in the office and from home, although that has faced challenges due to increased Covid cases in many countries. Apple Inc. this month delayed a plan to require employees to return to the office three days a week. Credit Suisse Group AG chief executive Thomas Gottstein said he did not think banks would return to working full-time from the office.
All of that bodes well for Zoom, unlike some of the pandemic darlings that are still showing growth in its key metrics. After sales grew more than 12 times over the past three fiscal years, analysts expect a 12% increase in the first quarter.
Compare that to Netflix Inc., which has been unable to sustain new customers during the pandemic and shocked Wall Street last month with its first drop in subscribers in more than a year. decade.
Analysts like Harrigan say Zoom’s product offerings could make it a post-Covid winner as more and more employees look to flexible work arrangements.
“I think the Street doesn’t filter out the tea leaves with Zoom,” said Daniel Morgan, senior portfolio manager at Synovus Trust. “They’re just snuffing it out with Covid commerce at home like Amazon or Netflix and aren’t really looking at the larger fundamentals.”
Morgan Stanley analyst Meta Marshall said the quarterly report would act as a catalyst to refute over-optimism about Zoom’s growth.
Marshall wrote in a note: “Extensions for contracts signed in the early stages of Covid will be approved for another year in the March/April timeframe, which will provide a better view. about customer retention,” Marshall wrote in a note. She has an overweight recommendation on Zoom.
Forecast Upside
In favor of the mostly bullish sentiment, analysts are forecasting that the stock will climb 60% to $143.30 over the next 12 months, according to data compiled by Bloomberg. While this is a far cry from the 2020 closing high of $568.34, it represents huge potential gains for those buying the stock at current depressed levels. Zoom closed at $89.74 on Friday.
Moreover, the valuation of the stock is not as high as it used to be. The San Jose, California-based company trades forward earnings around 25x, down from 225x in September 2020.
To be sure, Zoom’s growth is slowing as in-person schools restart, offices reopen, and competition increases from Microsoft Corp.’s Teams software, Salesforce Inc.’s Slack platform. and Webex of Cisco Systems Inc.
Expected volatility
Traders are bracing for some volatility following the results, with the stock expected to rise more than 21% in both directions – a figure larger than the moves seen after reporting the past six quarters. published, according to data compiled by Bloomberg.
Overall, though, there’s a sense of optimism that Zoom is positioned to prosper in a post-pandemic world.
“Even as we move to a more hybrid workplace, we will need a trusted platform for virtual communication to complement face-to-face meetings,” said analyst Pedro Palandrani. at GlobalX.
