Zoom Video Communications, Inc.

Date: April 21, 2024.

Company’s Overview

Zoom Video Communications (ZM), a cloud-based video conferencing giant, keeps the world connected virtually. From video calls to webinars, they offer tools for businesses, schools, and individuals to connect seamlessly across the globe. Imagine a platform that lets you attend meetings, lectures, or chats from anywhere — that’s Zoom in a nutshell.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Despite its booming popularity, even virtual connections come with risks. Increased competition from tech giants like Microsoft and Google threatens Zoom’s market share. Security breaches and privacy concerns can erode user trust, which is crucial for their success. As the world opens back up, a decline in video conferencing usage could shrink their user base and revenue. Zoom’s stock price might also be inflated due to its rapid rise, and a correction could loom if user growth slows. Regulation adds another layer of complexity, as changing data privacy and security rules can increase costs and limit their reach in some areas.

Financial Analysis

Company’s Revenues

Revenues from 2021 to 2023:

• Zoom Video Communications annual revenue for 2024 was $4.527B, a 3.06% increase from 2023.
• Zoom Video Communications annual revenue for 2023 was $4.393B, a 7.15% increase from 2022.
• Zoom Video Communications annual revenue for 2022 was $4.1B, a 54.63% increase from 2021.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Zoom Video Communications annual net income for 2024 was $0.637B, a 514.69% increase from 2023.
• Zoom Video Communications annual net income for 2023 was $0.104B, a 92.46% decline from 2022.
• Zoom Video Communications annual net income for 2022 was $1.375B, a 104.77% increase from 2021.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Zoom Video Communications 2024 annual EPS was $2.07, a 508.82% increase from 2023.
• Zoom Video Communications 2023 annual EPS was $0.34, a 92.44% decline from 2022.
• Zoom Video Communications 2022 annual EPS was $4.5, a 100% increase from 2021.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Zoom Video Communications annual free cash flow for 2024 was $1.472B, a 24.06% increase from 2023.
• Zoom Video Communications annual free cash flow for 2023 was $1.186B, a 19.44% decline from 2022.
• Zoom Video Communications annual free cash flow for 2022 was $1.473B, a 5.86% increase from 2021.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

In February 2022, the Company authorised a stock repurchase program of up to $1.0 billion of its Class A common stock, which was completed in December 2022. During the year

ended January 31, 2023, we purchased and subsequently retired 11,170,907 shares of its Class A common stock for an aggregate amount of $1.0 billion.

However, the Company issued more shares than repurchased in last years. From 2018, the Company’s shares outstanding increased by 280%.

Asset/Liabilities & Current Ratio

Diving into Zoom’s financial health reveals a very strong balance sheet. The asset-to-liability ratio of 5.2 indicates their assets (resources) are more than five times higher than their debts (liabilities). This provides Zoom with a massive financial cushion. They have ample resources available for strategic investments in research and development, user acquisition, and weathering any unforeseen challenges. This financial strength is a significant advantage in the competitive video conferencing landscape.

The current ratio of 4.5 further strengthens this positive picture. This metric measures a company’s ability to meet short-term obligations (debts due within a year) using short-term assets (cash, receivables). A ratio exceeding 1, like Zoom’s, suggests they have a significant amount of readily available resources to cover their immediate financial commitments. This allows them to seize time-sensitive opportunities and navigate short-term market fluctuations with greater flexibility. With a robust balance sheet and exceptional liquidity, Zoom is well-positioned for continued growth and success.

Valuation

Based on the DFC analysis, ZM’s price is fairly valued, showing an intrinsic value of $60. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 6 buy, 2 overweight, 24 hold, 0 underweight and 2 sell ratings. The consensus rating leans toward hold.

Zoom offers a compelling opportunity for investors seeking a leader in the cloud-based video communication space. While competition from tech giants like Microsoft Teams and Google Meet is a significant threat, Zoom boasts several strengths. Their financial health is exceptional. With a negative net debt of -$1.48 billion and an asset-to-liability ratio of 5.2, they have a massive financial cushion and ample resources to invest in growth and navigate challenges. Furthermore, their liquidity is impressive, with a current ratio of 4.5, indicating readily available resources to seize opportunities.

Performance is another bright spot. They’ve delivered strong results with a 3-year revenue CAGR of 12.2% and an impressive 3-year EPS growth rate of 32.5%. They also generate exceptional returns on invested capital, with a ROIC of 11.77%. Their superior profitability is evident in their gross margin of 76.35% and a net margin of 14.08%, both well above industry medians. Their stock price appears fairly valued based on DCF analysis.

While the P/E ratio of 30.85 is slightly higher than the industry median, their exceptional financial health, strong performance, and superior profitability make Zoom an attractive option for investors seeking a well-rounded player in the growing video conferencing market, especially considering they consistently generate increasing revenue and free cash flow.

Affiliate

Trade with confidence on Freedom24, your trustworthy and licensed EU broker. Sign up using my referral link (https://freedom24.com/invite_from/2161547) and get a free stock worth up to $700! (Offer for engaged EU residents over 25).

Blog

https://alphacapital99.wordpress.com

Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.