Zoom Video Analysis From Long-Time Bull
April 02, 2020
I recently discussed Zoom Video and its continued phenomenal rise. In the face of a global pandemic, the company has become the top performing stock on the NASDAQ this year with over 130% gains, or nearly a 160% spread with the 30% market decline.
From there, the stock has continually commanded the highest price-to-sales in the cloud software category and was able to hold its opening IPO price of $62 as support even when the market dumped cloud software last September with 30-40% drawdowns across the board.
So what’s Zoom’s secret?
Zoom’s easy access and URLs is the foundation of Zoom’s success. This is what we call product-market fit and why analysis on tech stocks should start with the product to maximize returns.
Product-market fit is what led me to call Zoom Video the best IPO of the year in 2019, why I encouraged investors to know their winners during the cloud selloff, and why we reiterated a buy signal on my research site when Zoom Video was at $65.
Zoom Video is a company where valuation defies logic. Zoom’s enterprise value/sales of 66 is the highest EV/Sales of any U.S. tech company valued at more than $500 million. The forward PE ratio is 260, although some of this reflects a company newly profitable.
Prior to going public, Zoom Video (ZM) had been doubling its revenue for the past three years and did this again for the fourth year. The company posted 100%+ revenue growth, climbing from $60M in revenue for fiscal 2017 to $330M in revenue for fiscal 2019. This is with gross profit margins in the high 70% to low 80% range.
Additionally, quarterly revenue also grew 78% same-quarter year ago to $188.3 million. Adjusted EPS was $0.15 compared to $0.04 EPS in the year-ago quarter. Q4 GAAP income grew 92% YoY to $10.6 million with adjusted non-GAAP income growing 292% YoY to $38.4 million. And total revenue grew 88% year-over-year to $622.7 million and revenue grew at a CAGR of 117% from FY 2017 to FY 2020.
Meanwhile, Zoom Video’s forward guidance shows a more tempered growth rate as the company approaches the $1 billion annual run rate. The median revenue estimate for Zoom Video is 48% growth in fiscal 2021 to $921.8 million and 39% growth in fiscal 2022. Management guidance for revenue is slightly lower than the consensus at $910 million in the mid-range for fiscal 2021. The median EPS guidance for FY 2021 is $0.45 and for FY 2022 is $0.58.
Finally, it’s worth mentioning that Zoom is outperforming both Google Hangouts and Microsoft Skype. The app is currently the second most downloaded mobile app, behind TikTok, according to app-analytics firm Sensor Tower. Citing data from tracking company Apptopia, The New York Times reported that close to 600,000 people had downloaded the iOS app in a single day earlier this month.
Sign up for Analysis on the Best Tech Stocks
I’m an industry insider who writes free in-depth analysis on public tech companies. In the last 12 months, I predicted Facebook’s Q2 crash, Roku’s meteoric rise, Uber’s IPO flop, Zoom’s IPO success, Google’s revenue miss and more. Be industry-specific. Know more than the broader markets. Sign up now. I look forward to staying connected.
If you are a more serious investor, we have a premium service that offers institutional-level research and entry/exit options. This membership offers a competitive edge in identifying growth opportunities and reducing risk in the tech sector. Learn more here.
More To Explore
Zoom Video Analysis From Long-Time Bull
I recently discussed Zoom Video and its continued phenomenal rise. In the face of a global pandemic, the company has become the top performing stock on the NASDAQ this ...
Why no streaming company will be able to dethrone Netflix
Netflix critics see mountains of debt and bleeding free cash flow. Opportunists see a company with the world’s best track record for beating the odds in disrupting trad...
VIDEO: Is the Bottom in for Roku?
The last few months have been difficult for tech growth investors. In isolation, it would appear that the party is over, and the broad market is likely to follow. However, if we track where the money
Podcast with Motley Fool: I/O Fund’s View of the Growth Market Right Now
I recently joined the Motley Fool podcast with Brian Feroldi and Brian Stoffel where we discussed electric vehicles, artificial intelligence, and whether growth tech investors should rotate into value
Roku: Anatomy of a Tech Darling—From Pre-Proven Business Model to Global Acceptance
The power of these misunderstood microtrends are the reason why many investors missed out on Netflix and can’t understand how a company with such “terrible fundamentals” isn’t collapsing. The market s
Why We’re Skipping Coinbase and Prefer Voyager Digital: Overview of Crypto Trading
Voyager Digital is a smaller cap that gives investors exposure to the Bitcoin and crypto trading trend at a reasonable valuation.
Netflix: Coronavirus Cements The Company as Untouchable
Last week in Forbes, I explained why Netflix will remain the leader in the OTT market.
Top Momentum Stocks Affected by Cash Rotation in Q3
It has been a difficult quarter for many top momentum stocks like Slack (WORK), Veeva Systems (VEEV), Alteryx (AYX) and Zoom Communications (ZM). The companies have con...
Apple is Not a Growth Company Anymore
I grew critical of Apple earlier this year when it became clear the company would decline in revenue year-over-year, yet investors and analysts alike continued to pump ...
Microsoft Stock Price: Technical Analysis
Unlike most tech stocks, Microsoft's stock price has over 30 years of trading action to analyze. With more data to analyze, I tend to lean heavier on Elliott Wave theor...