Zoom Stock: Is It a Buy Right Now?
Zoom, the hot video conferencing app that kept families and workforces alike connected during the pandemic, recently announced an agreement to purchase Five9, a tech firm that automates call center services via chatbots, Investor’s Business Daily reported. Zoom intends to acquire Five9 in an all-stock deal totaling $14.7 billion.
How will the acquisition affect Zoom stock prices? Did investors who didn’t buy back in January 2020 miss the boat on Zoom stock profits? And what’s to come for the future of the video conferencing app as competition from RingCentral, Cisco Systems and Microsoft heats up?
Is Zoom Stock Still a Good Buy?
Investors and analysts right now are calling Zoom a hold, according to reports from MarketBeat and IBD. Among 26 Wall Street analysts, only two say to sell at the current price, 12 say hold, and 12 call it a buy, MarketBeat writes.
Bank of America analyst Daniel Bartus is among the investors calling Zoom a buy right now, IBD reports. He named Zoom a “top pick” in a recent note to clients. “The control of internal and external communications should also better position Zoom to open the platform for application developers and create a marketplace. With a $5 billion cash position and 36% operating margins, we also believe Zoom has an attractive opportunity to do more potential M&A, outspend competitors, and extend its leadership position,” Bartus said in the note, according to IBD.
But to make a wise choice and better assess the company’s future, it’s smart to take a quick look back at Zoom’s history, explore its fundamentals, and view the stock’s technical analysis.
Zoom Company History
Zoom was incorporated as Saasbee Inc. in 2011. The company, founded by Eric Yuan, changed its name to Zoom Video Communications in 2012 and launched the Zoom video conferencing app in January 2013. The business app showed promise, with a million Zoom users logged in by May 2013, according to the Business of Apps website. By June 2014, users had zoomed up to 10 million. It quadrupled those numbers by February 2015.
The company went public on April 18, 2019, with the stock closing up 72% from the opening bid, and trading at $62. The company raised $752 million from its initial public offering, according to Investor’s Business Daily.
But it was nearly a full year later that the video conferencing app began to show its real potential. In March 2020, the company logged 200 million daily users, CNBC reported.
Zoom had carved a place as the go-to source for work-at-home employees and family and friends desperate for social interaction during the COVID-19 pandemic and resulting quarantine that began on March 19, 2020, with California as the first state to issue a stay-at-home order. The number of meeting participants worldwide rose by 2,900%, Business of Apps reported.
Zoom (ZM) stock prices, likewise, soared, reaching a high of more than $500 per share by September 2020. This was more than five times its January 2020 price, when it hovered in the $70s, based on Yahoo Finance historical tables.
Zoom’s Biggest Competition in the Market
Although Zoom emerged as a platform for face-to-face virtual communication between family and friends during the pandemic, it was launched as a business app. It earns about 50% of its revenue from monthly business and individual subscribers, IBD reports.
As employees return to offices and family and friends begin gathering in person, Zoom will continue to focus on enterprise accounts that provide $100,000 in annual recurring revenue. It will focus efforts on converting monthly business subscribers to annual contracts, IBD says.
With this enterprise market in mind, Zoom continues to face competition from bigger, established names in the business sector, including:
The upcoming acquisition of Five9 also puts Zoom in competition with Twilio, a Silicon Valley-based cloud communications platform with enterprise customers such as ING and Instacart, according to the company website.
Zoom Stock Fundamentals: Are They Strong?
Any tech company can hold up against competitors, however, if the product, service and support are strong and the company fundamentals are sound. How does Zoom rank in this regard?
Investors and analysts bullish on Zoom stock argue that video conferencing will only continue to grow, even as people return to in-person interactions. With security concerns that arose in 2020 during the pandemic addressed through password protection, invite-only meetings, and waiting rooms requiring a moderator to allow users into meetings, Zoom’s future looks bright.
Business and individual users alike point to the platform’s ease of use without the need for outside tech support, robust capabilities, and affordable pricing among the app’s top benefits.
The company’s other products, such as Zoom Phone, which can replace traditional phone systems to allow for Voice over IP calling without video, could be a market disruptor, IBD writes. Bank of America analyst Daniel Bartus said that Zoom Phone has potential to achieve $2 billion in revenue by 2026.
Zoom Stock Technical Analysis
IBD only gives Zoom stock a relative strength rating of 40 out of a possible 99, noting that it “lacks a proper entry point” right now. It’s currently trading above its 50-day moving average, IBD reports, indicating a hold position could be the right move for investors.
Let’s take a look at the moving averages as of 4 p.m. on July 30:
- 5-day: $374.86
- 50-day: $360.32
- 100-day: $340.81
- Year-to-date: $353.58
Pros and Cons of Zoom Stock
Although many investors are calling Zoom a hold right now, note that equal numbers are calling it a buy, according to analyst reports. If you feel passionate about the company and its fundamentals, you may want to help support the platform with a stock purchase.
Before you do, take a look at the potential pros and cons:
Benefits to investing:
- Rapid growth since its IPO
- Brand awareness
- New acquisitions show promise for expansion
- Disruptive technologies could mean increased profits
- Business model that supports individuals, small businesses and enterprise-level users
Concerns to be aware of:
- Currently trading above its recommended buy price
- Low IBD rating
- Increasing competition
The stock market is a highly speculative venture. Speak to a financial advisor before investing in Zoom or any stock.
Data is accurate as of July 29, 2021, unless otherwise noted, and subject to change.
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- CNBC. 2020. "How Zoom became so popular during social distancing."
- CNBC. 2019. "Zoom rocketed 72% on first day of trading."
- MarketBeat. "Zoom Video Communications Stock Forecast, Price & News."
- Barchart. "Zoom Video Communications Cl A (ZM)."