Zoom Video Communications (NASDAQ:ZM), a high-growth communications firm, unveiled a host of new products and features at its Zoomtopia user conference last week. Furthermore, management increased its long-term profitability goal. Despite these positive trends, Zoom stock continues to be overvalued.
Zoom Video Communications (NASDAQ:ZM) Earnings
On March 1, Zoom will announce its Q4 and 2020 earnings. Analysts predict $2.91 in earnings per share (EPS) for the year, valuing ZM stock at 134.7 times historical earnings (at $391.84 on February 2).
Furthermore, according to Seeking Alpha’s analyst compilation average, they expect only a marginally higher EPS of $2.96 this year. ZM stock now has a forward P/E ratio of 132 times.
With little growth this year and an astronomically high valuation, the company should at the very least be making high margins. Yeah, it does. Zoom’s gross margin was 65 percent last year, and its operating margin was about 25 percent.
The company’s net income for the period was $198.4 million, or 25.5 percent of its overall revenue of $777.2 million.
However, rivals are mindful of this. By undercutting their prices for video meetings, they could potentially take advantage of the company’s 65 percent gross margins.
Remember how, until the early 2000s, you had to pay for long-distance calls? They’re all free now. Long-distance service was once a high-margin commodity for telecommunications companies.
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Are zoom shares a good investment?
Zoom’s stock is currently overvalued, with a 12-month trailing P/E ratio of approximately 444 times its EPS. However, if the company manages to boost its financial performance and gains market share in the video conferencing industry, the company might have a bright future.
Zoom has evolved over the Years
The business does, in fact, keep innovating and expanding. Several exciting new features and products were revealed during Zoomtopia. It strengthened its video communications capabilities, for example, by incorporating immersive scenes, in which all meeting members can be seen with a similar background picture to give the appearance of being in the same physical room.
Zoom announced a slew of new features, including Zoom Phone. But, more significantly, several recent advances have elevated Zoom to the status of a forum.
The company unveiled its On Zoom online event platform, which can be used to host free or paid events such as webinars.
Another breakthrough that diversifies Zoom as a medium is Zapps. These are apps that work in tandem with Zoom to create streamlined processes. Participants can use Slack channels directly from Zoom meetings, for example, due to an integration with the communication platform Slack Technologies.
The company also improved its software development kits (SDKs) to make it easier for consumers to incorporate its communication features into their apps.
Zoom’s transition from a video communications professional to a website could improve the stickiness of its products in the future. Other video conferencing applications are just a few mouse clicks away. Employees would be less tempted to use alternative remote communication solutions as companies incorporate Zoom into their workflows.