Stock Analysis & Ideas

Why Zoom Video Stock (NASDAQ:ZM) May Still be Too Expensive

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Zoom Video has been under so much pressure, with new rivals pushing into video-conferencing software. With a growing ecosystem of new products, it’d be a mistake to completely count the former pandemic high-flyer out of the game at these depths. Nonetheless, there still may be some downside ahead.

Zoom Video Communications (NASDAQ: ZM) stock has been crushed since peaking back in late 2020, and its slide may not be over, as the biggest pandemic winners look to surrender even more of their 2020 gains. Despite the epic collapse, Zoom stock is still up from the start of 2020. Though Zoom has a great product that exploded in popularity during lockdowns, the stock may still be too expensive, given the recession ahead and rivals in the video-conferencing space.

Although Zoom has done a great job diversifying its product base with Zoom Contact Center, Zoom Phone, and other intriguing offerings, it’s hard to justify the current 24.5x trailing earnings multiple. I am neutral on the stock.

Further, big tech has targeted video-conferencing solutions. As their offerings improve over time, there may not be much stopping clients from jumping ship. Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) is one competitor that scares me the most. Google has been pushing its Workspace suite quite hard recently, with Google Meet bundled alongside other cloud-based productivity solutions, including Docs and Sheets.

Google Meet: Has Zoom Video Communications Met its Match?

Google Workspace (formerly G Suite) products work so well together. Though Zoom may have had superior video-conferencing technology during pandemic-era lockdowns, Google looks to be closing the performance gap. Google teamed up with Pexip to improve upon interoperability. As time goes on, one has to think the Meet platform will grow to become even more flexible and easy to use.

With the inclusion of Google Meet within the incredibly popular Gmail app, Google is giving users another reason to use its video-conferencing application over a rival. Indeed, Zoom continues to innovate with new collaboration and work solutions. However, I think Google is too deep-pocketed a firm to fend off, as it looks to get a bigger slice of the video-conferencing market.

Google is reportedly taking a page out of Zoom Video’s playbook, with the popular push-to-talk feature coming soon to Google Meet. Undoubtedly, Google Meet is becoming more Zoom-like with time. With such a strong network effect in Google Workspace, I’d have to give the edge to Google as the video-conferencing wars take it to the next level.

Remote and hybrid work is likely here to stay, even as the pandemic draws to a close. Still, Zoom doesn’t seem to have a wide enough moat to keep its rivals at bay. Google is just one Zoom rival that could take meaningful share as it continues rolling out new features and functionality.

Zoom is Exploring Growth Beyond its Flagship Product

Zoom isn’t just going to sit around and let its competitors take its slice of economic profits in video-conferencing. The company’s portfolio is growing, with a wide range of product offerings, including Zoom Rooms, Zoom Meetings, Zoom Phone, and Zoom Apps. The most intriguing new offering that could help Zoom enhance its ecosystem is the online events platform OnZoom.

Zoom’s OnZoom could easily evolve to become Zoom’s next major growth driver. The platform is currently in beta and aims to be a go-to marketplace for “immersive experiences.”

Undoubtedly, OnZoom seems to be fine diversifying away from its traditional work and productivity areas of expertise. As the platform targets live events and other forms of engaging entertainment, OnZoom could find itself clashing with wildly-popular video-game-focused live streaming platform Twitch and even co-experience platform Roblox (NYSE: RBLX).

Twitch may have started as a place to watch other people play video games. Over the years, the platform has become a place where viewers can watch special events or engage in other non-gaming experiences. The “Just Chatting” category is consistently among Twitch’s most popular categories.

In any case, Zoom’s move into live experiences seems to be well-timed, with firms like Roblox proving there’s ample money to be made in digital experiences. Further, such an experience platform could act as an onramp into the metaverse.

Is ZM a Good Stock to Buy?

Turning to Wall Street, ZM stock comes in as a Moderate Buy. Out of 22 analyst ratings, there are seven Buys, 14 Holds, and one Sell. The average Zoom Video price target is $108.94, implying upside potential of 36.1%. Analyst price targets range from a low of $76.00 per share to a high of $130.00 per share.

Conclusion: Don’t Expect an Epic Rebound

Zoom Video will probably never see a tailwind as powerful as it experienced early-to-mid 2020. Tech rivals have set their sights on video-conferencing, making it tough for Zoom to maintain the growth rate it commanded just over a year ago.

Though Zoom stock may not see its highs again, intriguing efforts like OnZoom could help give the firm a growth jolt and allow the stock to find its footing again. The OnZoom experience platform is still in its early days, but if it can carve out a nice slice of the video-based experiences market, I’d not be surprised if Zoom stock ends up being a winner for investors who get in at today’s modest prices.

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