Sep 18, 2020
Is Zoom a Promising Long-Term Investment?
OVERVIEW
Zoom Video Communications Incorporation is a cloud-conferencing company based in the United States. They offer several products such as video calling, voice calling, chat, and many others to both individual as well as enterprise customers all over the world. It integrates these products into several other applications and websites for its consumers to better use the technology.
Why You Should?
- The COVID-19 Pandemic has led to a spike in conferencing demand. Zoom is the largest company in this space and has greatly benefited from the exponential increase. Everyone had to move to a work from home situation overnight and Zoom was able to capitalize on this demand. This will benefit the company’s short term as well as long term growth.
- Before the COVID-19 Pandemic, companies around the world were moving to a more digital environment and one way to do this is through video conferencing tools like Zoom. People may not think that there was a need for Zoom before this pandemic but that is not correct as the company was seeing demand rising as companies look for efficient communication.
- Zoom has strong brand recognition around the world and it has benefited because of this. “Zoom” has become synonymous with video conferencing just like “Uber” is for ride-hailing and “Netflix” is to relax and watch entertainment. This has benefited the company in the past and it will definitely benefit it in the future.
- Zoom has seen rising revenues and profits over the past couple of financial years and I expect that the company will have its best next couple of years in the times ahead of us. This is due in part to the reasons mentioned above and if the company continues to innovate its product selection. Zoom has seen a parabolic rise in revenue. In the financial year of 2020, they reported revenues of 622.6 million and profits of 25.3 million. Both of these metrics are higher than what the company reported in the financial year of 2019 when they reported revenues of 330.5 million and profits of around 7.5 million.
Why You Should Not?
- Zoom still faces competition from several large competitors in this space. Though they are the largest, other companies like Amazon, Facebook, Apple, Google, and Cisco have entered this space and have taken market share away from Zoom. Other smaller companies have also had similar effects.
- Though Zoom has been quickly adopted as a way for institutions to operate during these unprecedented times, some of the demand will quickly go away as people get vaccinated. Schools and small businesses will no longer need their enterprise accounts because of a relaxation of government regulation. Zoom will be negatively impacted by this trend.
- Zoom is an extremely expensive stock that trades at $380 which is over 450 times earnings. This makes the investment volatile and I will wait for the stock price to fall before picking stock up. Other COVID winners like Docusign have also seen similar effects with their stocks as investors load up on these names to whether the pandemic.
MY OPINION
In my opinion, I think that Zoom is a great long term investment due to an overall rise in virtual communication services which have further risen due to the COVID-19 Pandemic. Rising revenues and profits as well as a strong brand name will help the company grow in the future. However, an expensive stock, competition, and possible unsustainable demand might hurt the company in the future.
