Company Overview:
Zoom Video Communications, Inc. provides unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings that offers HD video, voice, chat, and content sharing through mobile devices, desktops, laptops, telephones, and conference room systems; Zoom Phone, an enterprise cloud phone system; and Zoom Chat enables users to share messages, images, audio files, and content in desktop, laptop, tablet, and mobile devices.
Investment Information:
Competition:
In order to undergo a comparable analysis (to determine ZM stocks value), we need to first outline who ZM’s competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to ZM, and have a market cap similar to ZM (if possible).
By keeping this in mind, I found the following list of companies to be some of ZM stocks closest competitors:
ABNB, ATVI, NTES, BIDU, VOD, CHTR, ROKU, EA, MTCH, BILI
Financial Information:
Yearly:
- Revenues: In FY 2021, ZM experienced a yearly increase in revenues of $2.03B (or 325.81%) resulting in a total revenue figure of $2.65B.
- Cost of Revenues: In FY 2021, ZM experienced a yearly increase in their cost of revenues of $706.59M (612.32%), resulting in a total revenue figure of $821.99M. Since the increase (of 612.32%), in ZM’s cost of revenue was greater (by 286.51%) than the increase (of 325.81%) in ZM’s revenues, we should expect that ZM experienced an decrease (roughly -286.51%) in their FY gross profits.
- Gross Profit: In FY 2021, ZM experienced a yearly increase in their gross profit of $1.32B (or 260.64%) resulting in a total gross profit of $1.83B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY.
- EBITDA: In FY 2021, ZM experienced a yearly increase in their EBITDA of $664.08M (or 1,551%) resulting in a total EBITDA of $706.89M. This increase (of 1,551%) stems from the fact that ZM experienced a increase in their gross profits of 260.64% (as we saw in the previous bullet point).
- Net Income: In FY 2021, ZM experienced a yearly increase in their net income of $647.01M (or 2,557%) resulting in a total net income of $672.32M.
- EPS: As a result of ZM’s increase in net income of $647.01M, ZM’s EPS also increased (by $2.26) from $0.11 in FY 2020 to $2.37 in FY 2021
Overall, ZM stock performed very well financially in 2021. However, how have they fared over a more recent time period?
Quarterly:
- Revenues: In Q3 2022, ZM experienced a quarterly increase in revenues of $29.26M (or 2.86%) resulting in a total revenue figure of $1.05B.
- Cost of Revenues: In Q3 2022, ZM experienced a quarterly increase in their cost of revenues of $9.7M (3.71%), resulting in a total revenue figure of $270.96M. Since the increase (of 3.71%), in ZM’s cost of revenue was greater (by 0.85%) than the increase (of 2.86%) in ZM’s revenues, we should expect that ZM experienced an decrease (roughly -0.85%) in their Q3 gross profits.
- Gross Profit: In Q3 2022, ZM experienced a quarterly increase in their gross profit of $19.56M (or 2.57%) resulting in a total gross profit of $779.8M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q3 and Q2.
- EBITDA: In Q3 2022, ZM experienced a quarterly increase in their EBITDA of $95.18M (or 28.1%) resulting in a total EBITDA of $433.89M. This increase (of 28.1%) stems from the fact that ZM experienced a increase in their gross profits of 2.57% (as we saw in the previous bullet point).
- Net Income: In Q3 2022, ZM experienced a quarterly increase in their net income of $23.3M (or 7.35%) resulting in a total net income of $340.38M.
- EPS: As a result of ZM’s increase in net income of $23.3M, ZM’s EPS also increased (by $0.08) from $1.07 in Q2 2022 to $1.15 in Q3 2022
Overall, it seems as though ZM had a great financial performance (due to EPS $0.08) as many of their financial metrics grew, most notably their EPS (by $0.08), as well as their net income (by $23.3M), and other metrics (as you can tell from the above bullet points).
Share Dilution:
As part of their Q3 2022 earnings release, ZM stated that they currently have 295.71M Shares Outstanding (weighted average), which is up 0 shares (from 295.71M shares outstanding in Q2 2022). This is fantastic for investors as it is one less thing that they have to worry about.
Furthermore, ZM stock has up to 10.15M of shares that they can issue (thereby diluting ZM’s stock). This maximum dilution for the period would only have a dilutionary effect on ZM of 3.43%, which is cause for some concern. This is not a huge deal, but investors should be aware of this, and be prepared for a decrease in price if these shares are added to the market.
ZM Stock Analyst Ratings:
Here is the current analyst rating distribution for ZM. In total there are 36 ZM stock analyst ratings.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if ZM stock is a buy or sell
ZM Stock Valuation:
Ratings:
ZM stock has been given an overall rating of 4 — Strong. This implies that ZM is sound fundamentally and is a good candidate for being “undervalued”. With this in mind, let’s proceed with more concrete valuation methods.
Comparable Analysis:
- Price to Book (P/B): ZM’s current P/B ratio is 8.84, compared to the average P/B ratio of ZM’s peers being 6.39. This implies that ZM is overvalued and their share price should change by a factor of -27.72% to be at fair value (based on ZM’s P/B compared to the P/B of their peers).
- Price to Equity (P/E): ZM stock P/E ratio is currently 40.63, compared to the average P/E ratio of ZM’s peers being 30.6. This implies that ZM is overvalued and their share price should change by a factor of -24.68% to be at fair value (based on ZM’s P/E compared to the P/E of their peers).
Overall, ZM stock is overvalued and needs to experience a change in stock price of (an average of) -26.2% to be considered “at fair value”. This is not good news for investors, as there is inherent risk (of nearly 25%) in an investment into $ZM stock.
My Final Thoughts on ZM:
Overall, due to the overall stock rating of 4 — Strong (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that ZM was overvalued and need to experience a price change of -26.2% in order to be at their fair value, I have concluded the following:
There is a case to invest in zoom, and there can be a case made against investing in zoom given the contents of this analysis. My best advice is to read their financial report that just got released earlier today (May 23 2022) and see which of these factors have changed (and for better/worse) and make your own conclusion.
It seems as though this report was bullish as they are up 6% on an EPS beat of 18% while meeting their revenue estimate.
Due to this I personally would lean toward the “Bullish Case”.
Originally published at https://utradea.com.
