Is there any stock that has benefited more from the novel coronavirus pandemic than Zoom Video Communications (NASDAQ:ZM)? Not in the tech sector at least. Companies were forced to rapidly accommodate employees who were working from home. Schools switched to online teaching. Families and friends adopted video conferencing to keep in touch. Zoom was easy to set up, it offered a free version and it had a cool name.
After posting 8.5% growth in 2019 (its first year as a public company), Zoom stock is up more than 600% so far in 2020. If you used ZM’s all-time high close of $568.34 on Oct. 19, it’s 735%.
Tech stocks are not immune to time or to changing circumstances. In fact, I recently published a list of tech stocks I’d suggest selling before it’s too late. Zoom Video Communications is not on that list. There are some who feel that with the arrival of Covid-19 vaccines and the eventual end of the pandemic in sight, ZM is in trouble. I think that’s a knee-jerk reaction. Zoom is not a fly-by-night operation. This is a company that evolved rapidly to meet enterprise needs and is here to stay.
Zoom stock gets an “A” rating in Portfolio Grader. It’s down from that mid-October high, but that just means it has more upside.
Post-Pandemic Doesn’t Mean Zoom Is in Trouble
Zoom’s 2020 second-quarter earnings told the story of the pandemic boost. The company reported 148.4 million active users, up 4,700% year-over-year. Many of those were consumers using free accounts. However, many were also business, enterprise, medical and education customers who were paying.
Revenue for the quarter of $663.5 million blew past estimates and was up 355% year-over-year. Adjusted earnings per share of 92 cents was more than double what Wall Street was expecting.
Yes, Zoom was in position to benefit from the pandemic. But many of the paying customers who signed up for Zoom — skipping more established video conference offerings from some of the biggest names in tech — are going to continue to keep their subscriptions. The company reacted quickly to early security issues, which helped to calm any IT concerns about going with a less traditional offering.
When everyone is vaccinated against the coronavirus and life can return to normal, that means remote workers will be able to return to the office. However, many won’t. Many companies have announced that working from home will remain a permanent option. That means those Zoom subscriptions aren’t going to be cancelled any time soon. We also learned to live without business travel in 2020, using tools like Zoom instead. Once there is a return to normalcy, the cost-savings of video conferencing instead of flying is going to remain a factor. Good for Zoom stock, terrible for airline stocks.
In addition, companies and organizations have recognized the value of being prepared. No one wants to repeat this year’s experience of the disruption and scrambling to keep their business operational. Even if their staff resume working in the office, expect many of these current subscribers to keep Zoom as an option so they can rapidly adapt if there is a repeat of the 2020 experience.
Bottom Line on Zoom Stock
What are other investment analysts saying about Zoom stock? Among those tracked by the Wall Street Journal, ZM has a consensus overweight rating. Their average 12-month price target is $489.98, which suggests the majority think this stock has run out of steam for now.
I don’t agree with the prospect of meager growth over the next 12 months. And I’m not alone. In mid-October, there were a number of upgrades issued for ZM. For example, BTIG analyst Matt VanVliet upgraded Zoom stock to a “buy” with a $550.00 price target.
I am firmly in the bull camp for ZM. I’m certainly not expecting to see the phenomenal growth the stock posted in 2020. Let’s face it, this year was the perfect storm for this company, and the conditions are not going to repeat. However, I believe that video conferencing in general — and Zoom in particular — got a running start as a result of the pandemic. Zoom gained an entry into enterprise. That momentum is going to have a lasting effect. Many new customers will remain customers, with Zoom offering ongoing flexibility plus insurance against a future lockdown situation.
I look at the dip in Zoom stock over the past six weeks as a buying opportunity, not a harbinger of worse to come.
On the date of publication, Louis Navellier had a long position in ZM. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.