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Zoom Slips as Lockdowns Look Less Likely
Stock Analysis & Ideas

Zoom Slips as Lockdowns Look Less Likely

Video conferencing and communications company Zoom Video (ZM) found itself in the midst of a battle over the long Thanksgiving weekend. The arrival of a new COVID-19 variant, dubbed omicron, fired up new fears of potential lockdown, and gave Zoom a bit of new life.

That life didn’t last, yet despite this slip, I’m moderately bullish on Zoom as it represents the best in Plan B for uncertain times.

Looking at Zoom’s stock charts for the year so far show a former lockdown economy superstar in the midst of a reopening economy. The high for the last year has long since come and gone. Zoom started out the last year with a closing price approaching $500 per share.

It hasn’t seen those levels since. The space between November 29, 2020 and November 30, 2020 was a catastrophe as the company lost over 20% of its share value in that one day. Another slip hit before 2020’s end, but recovery kicked in to lead off 2021.

That recovery turned into a slide that continued until mid-May. Another recovery kicked in, but with August, a drop began that would personify the rest of 2021 for Zoom. (See Analysts’ Top Stocks on TipRanks)

News of a new COVID-19 variant, omicron, spurred a recovery not only for Zoom, but also for other lockdown economy winners like Peloton (PTON), Netflix (NFLX) and Teladoc (TDOC). Subsequent reports over the weekend pulled the plug on lockdown economy gainers, however.

Word from South African doctors suggested that omicron cases featured “extremely mild” symptoms. That reduces the chances of a return to a locked-down economy.

Wall Street’s Take

Turning to Wall Street, Zoom Video has a Moderate Buy consensus rating. That’s based on 12 Buys and 12 Holds assigned in the past three months. The average Zoom Video price target of $305 implies 49.1% upside potential.

Analyst price targets range from a low of $207 per share to a high of $450 per share.

Lockdowns Lose their Luster

Zoom Video is living in a “good-news-bad-news” environment right now. That makes pinning exact appraisals of it particularly difficult.

Yes, the political will for lockdowns is rapidly running out. No one wants to go back to 2020 and experience another manufactured economic catastrophe of indeterminate length. Several gubernatorial elections are coming in 2022, and that’s going to put a crimp in those plans as well.

Moreover, Zoom’s current valuation is sparking some concern among analysts. Cathie Wood and her Ark Innovations ETF (ARKK) are buying up shares of Zoom at their declined levels.

Meanwhile, Chantico Global founder and CEO Gina Sanchez is convinced that Zoom is overpriced at its current levels. Sanchez is instead looking to Microsoft (MSFT) to provide greater value. That’s not surprising either. Microsoft has a presence in video gaming, cloud computing, and even hardware. The fact that Microsoft is valued at about 1.5 times what Zoom is currently doesn’t seem to be slowing Sanchez’s push any.

However, there’s still quite a bit going for Zoom. The company recently posted earnings reports that featured top- and bottom-line beats. The only thing that left investors nonplussed was the less-than-stellar guidance the company issued for the fourth quarter.

It’s also important not to forget the consensus upside potential the company’s experiencing. Microsoft may be a better value, as Sanchez suggests, but Zoom is more likely to increase in value.

Concluding Views

The lack of political will for lockdowns coupled with the likely impact of COVID-19 omicron doesn’t bode well for Zoom. However, we don’t specifically need lockdowns or a new disease running wild to give Zoom a leg up.

Zoom has demonstrated, and quite clearly, that it’s ready to drive the future of work. People who have had the opportunity to telecommute freely for much of the last two years aren’t likely to give it up. Some might be dying to return to the familiar office, but plenty have grown accustomed to the home office.

Zoom is likely to continue being not only the pandemic Plan B of choice, but also part of the future. Businesses won’t be able to stage firings en masse to get workers back into the office at all costs. Such a move would leave them effectively crippled.

There must be some accommodation for the workers who want to stay remote for whatever the reason. As such, Zoom will be part of the picture for some time to come.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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