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Zoom: Glory Days Are Over

Mar. 04, 2021 12:05 PM ETZoom Video Communications, Inc. (ZM)72 Comments


  • Zoom breaks below $350 as guidance fails to spark interest in the stock.
  • The company only predicts sequential revenue growth of 2%.
  • The stock is still insanely expensive trading at 28x FY22 revenue targets.
  • This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Get started today »

No other company probably benefitted as much from the locked-down economy as much as Zoom Video Communications (NASDAQ:ZM), but those glory days are now over. The stock has already been under pressure since hitting an all-time high back in late 2020 at nearly $600. My investment thesis remains highly negative on the stock as the insane growth days are over.

Zoom Video logoImage Source: Zoom Video website

Warning Signs

For the just reported quarter, Zoom reported some gaudy numbers. FQ4'21 revenues surged 369% to reach $883 million. Non-GAAP net income grew 839% to $361 million and operating cash flow had a similar growth rate to reach $399 million in the quarter. The company generated some impressive margins as the whole world suddenly transitioned to video conferencing apps.

These metrics are off the charts considering Zoom was already growing at an 80% clip. Even the guidance in comparison to analyst expectations for FY22 is solid, but the issue with the stock is the trends. The revenue trend chart shows growth plateauing at these elevated levels and guidance suggests the numbers are about to collapse.

ChartData by YCharts

Zoom reported FQ3'21 customers with more than 10 employees at 433,700 and the number only grew to 467,100 in the last quarter. The YoY growth rate at 470% is off the charts, but the amount of customers using the communications service only grew 8% sequentially after adding 385,000 customers for the whole year.

Any company with an employee base not using Zoom by now as the COVID-19 crisis is starting to rescind based on lower case counts as the vaccines are distributed probably isn't going to suddenly signup in 2021. Without new customers, Zoom will have to expand services utilized by existing customers while encouraging those existing customers to not return to business travel that bypasses the need

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This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.

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