Zoom Video Communications (ZM) provides video communication tools to customers around the world. The company faced profound tailwinds during the worst of last year’s lockdowns. Undoubtedly, such tailwinds have begun to fade, and the stock has reversed in a big way, plunging around 54% off its late-2020 all-time high.
You can’t blame investors for wanting to beat the crowd to the exits before the inevitable end of COVID-19 lockdowns and restrictions that kept employees working remotely.
Although we are inching closer to an endemic, the work-from-home (WFH) phenomenon is unlikely to end. Instead, the pandemic has likely caused a hybrid, work-from-anywhere model to be the new normal.
With that, video communication technology is likely to be in much higher demand than before the pandemic. Indeed, many of the clients that Zoom won the hearts of in 2020 are not going anywhere once workforces feel safe returning to the office.
If anything, the hybrid trend could continue to beef-up demand for video communications tools that aim to improve the productivity of remote workforces.
While Zoom Video found itself at the right place at the right time last year, investors have punished the firm for being fortunate, as its tailwinds look to further diminish.
Could it be that Zoom actually has the capabilities to improve upon its strengths in the pandemic, though?
Its founder and CEO, Eric Yuan, is a brilliant mind, and I’d bet that he’s not just lucky. Despite most of the reopening headwinds likely baked in here, though, I am neutral on the stock. (See Analysts’ Top Stocks on TipRanks)
Why? Zoom could find itself running into some stiff competition in a post-pandemic environment.
Competition Could Heat Up as Remote Work Is Likely Here to Stay
My concern is not that people will feel more enticed to come into the office once the pandemic goes endemic. Rather, I believe that competitive forces pose a potential risk to Zoom and its sizeable share. Whether Zoom can fend off such foes remains to be seen.
Regardless, the video-communications market is poised for impressive growth, and the boost given by the pandemic may have far longer-lasting effects than many may have initially thought.
Apple (AAPL), Microsoft (MSFT), and Meta Platforms (FB) are three technology heavyweights that could make a massive splash into video communications. Although I’m a huge fan of Zoom’s management team, it’s going to be hard to retain share with such firms breathing down the company’s neck.
All the attention on Apple’s latest iOS update was given to the prevention of ad-tracking, with less spotlight on Apple’s big FaceTime innovation. Undoubtedly, Apple took a page out of Zoom’s playbook, with the ability to link users (not just on the Apple platform) to a video chat.
Moreover, top metaverse players Microsoft and Meta have been investing heavily in the next frontier. Undoubtedly, the metaverse could be key to the future of work. Zoom has been magnificent at seizing the opportunity at hand thus far. That said, major rivals leveraging the power of the metaverse could make it very tough for Zoom to retain many of the frequent users it won over last year.
Wall Street’s Take
Turning to Wall Street, Zoom has a Moderate Buy consensus rating, based on 12 Buys and nine Holds assigned in the past three months. The average Zoom price target of $346.38 implies 34.1% upside potential.
Analyst price targets range from a low of $255.00 per share to a high of $460.00 per share.
The Bottom Line on ZM Stock
In short, through no fault of management, Zoom could find itself succumbing to rivals. While Zoom could have a solution up its sleeves once the world is ready to transition into the metaverse, the fact that FANGAM rivals have targeted the remote work market is not a good sign for its incumbent players.
For that reason, I’ll be sitting on the sidelines. The extremely long-term outlook, I believe, looks hazy, and the valuation (approximately 21 times sales) on ZM stock remains too rich for my liking.
Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.
