What To Do With Your Zoom Stock Amid News of Strong Q4 But Weak Forecast
Zoom had its day during the pandemic as one of the breakout tech stocks of 2020, reaching a high of about $559 in Oct. 2020. Over the past two years it’s been falling steadily, and lost another $5 on Tuesday, March 1, 2022, following weaker-than-expected forecasts for Q1 2022 — and the whole year, for that matter.
Even so, the video conferencing provider did post better-than-expected results for the fiscal fourth quarter of 2021, which ended Jan. 31, 2022. The company reported revenue of $1.07 billion, up 21% year-over-year, according to Barron’s. Wall Street analysts had predicted slightly slower growth, suggesting a revenue of $1.054 billion. And, in even more good news, Zoom posted revenue growth of 55% in the 2021 fiscal year, with total earnings of $4.1 billion.
Recognizing the challenges ahead, Zoom CEO Eric Yuan said in a statement reported by Barron’s, “It is apparent that businesses want a full communications platform that is integrated, secure, and easy to use.”
“To sustain and enhance our leadership position, in fiscal year 2023 we plan to build out our platform to further enrich the customer experience with new cloud-based technologies and expand our go-to-market motions, which we believe will enable us to drive future growth,” he concluded.
Still, as the stock continues to plummet through 2022, it begs investors to ask the question: What should you do with your Zoom stock?
Citi analyst Tyler Radke said he holds a neutral position on the company’s stock. “We believe that competitive inroads are increasingly exacerbating headwinds persisting from pull-forward activity and tough comps,” he wrote. He cited competition with Microsoft Teams as a key element in Zoom’s struggles.
In mid-Jan. 2022, Justin Pope of The Motley Fool pointed to Zoom’s “strong financials” as a reason to consider the stock. But, he warned, keep a close eye on competition from Microsoft, even though there is likely room for more than one player in the consumer video conferencing game.
Additionally, remember that enterprise customers remain Zoom’s cash cow — and that aspect of the business remains solid. At the end of FY 2021, Zoom had 2,725 customers generating $100,000 or more each in trailing 12 months revenue, Barron’s reported. Zoom’s enterprise customers were up 35% from 2020, with more than half a million customers boasting more than 10 employees.
Investor’s Business Daily gives Zoom an accumulation/distribution rating of D+, noting that it is trading well below an entry point. Right now, more funds are selling than buying Zoom, with an E rating indicating heavy selling. Zoom’s IBD relative strength rating is only 7 out of 99.
If you bought Zoom at its peak during the pandemic, it might be wise to hold given the company’s solid fundamentals and future growth plan, as well as recent past performance. You could also consider increasing your position to dollar-cost-average your price per share.
In late Dec. 2021, the experts at The Motley Fool said Zoom was “worth considering heading into 2022” and “clearly a buy for existing shareholders or those investors looking to start a position.” The company’s fundamentals haven’t changed and the company’s valuation is now more in line with those fundamentals, The Motley Fool reported.