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The Autumn Of Zoom & # 39; s Years (NASDAQ: ZM)



Zoom Video Communications (ZM) has had extraordinary growth in the first half of the year and over the summer, but now autumn is here, and competitors are catching up with Zoom. The company's functionality advantage is lost, and their own revenue forecasts show a growth level. Zoom & # 39 ;s incredibly high valuation cannot be maintained without the exceptional growth we have seen as a result of the pandemic, and cannot be justified even when we consider the company's growth.

  Zoom Video Communications

Competitors & # 39; Platforms Are Capturing Fast

Zoom has, for a while now, enjoyed what is actually a first-time advantage. Zoom was not the first to participate in the video conferencing space, but they have a good platform, and the company was focused on the sole purpose, unlike other technical giants who also happen to offer video calls. Unfortunately for Zoom, it looks like the big boys are catching up, and they risk losing the lead.

Zoom's platform has a lot to do: it's clean, easy to use and scalable. It also has some drawbacks: mainly the security issues that have been postponed in recent months, and significant disruptions that coincide with large blocks of land that have come online for the school. Despite the shortcomings, Zoom's use has ballooned during the pandemic and remains the preferred platform for many companies and organizations.

A major reason for Zoom & # 39 ;s relative advantage to such as Microsoft Teams, Google Meet or Cisco Webex has been their ease of use and speed along with functionality. Zoom's election and breakout rooms have, among other things, separated it from the competition. No longer! Google and Microsoft are both adding breakout rooms with Google that now provide better scalable views for up to 49 meeting members.

Zoom & # 39 ;s third-party app compatibility has also added the extra functionality, but here too competitors are in the process of acquiring Chrome extensions to fill in on Meets and Microsoft that allow third-party apps on Teams. These two products even capture Zoom & # 39 ;s wonderful virtual background feature with Google offering blurry backgrounds and Microsoft & # 39 ;s new Together Mode for Teams that can simulate different meeting backgrounds for the whole group. With competitors capturing Zoom on the features, it will be harder for Zoom to attract customers when Teams is offered as part of broader Microsoft 365 and Google Meet is available to anyone with a Gmail account.

The company is valued at a simply exorbitant price that can not be justified

Using Zoom & # 39 ;s earnings per share forecast for this fiscal year of between $ 2.40 and $ 2.47 gives the company a price ratio at 205.56. The Zoom shares passed $ 500 per share yesterday, giving the company a market value of $ 140.11 billion which represents more than 500% strengthening of the share value over one year. This makes Zoom one of the most valued companies in the United States more expensive than Broadcom (AVGO) or UPS (UPS). An important difference between Zoom and one of these companies is the valuation. Broadcom trades at 16.42 times EPS and UPS has a P / E of 22.99. UPS is not particularly a growth-oriented stock, but Broadcom is, and unlike Zoom, it has a long record. Broadcom has had an average revenue growth of 38.66% during the year. Zoom's revenue increased by 355% year over year, but is now ready for plateau and has a price / earnings ratio that would not fall in line with Broadcoms, even though the company's EPS increased 1000%.

Valuation Based on EPS levels

EPS

Price to income

FY2021 Current forecast (average)

$ 2,435

205.56

100% EPS growth over FY2021 [19659012] $ 4.87

102.78

200% EPS growth over FY2021

$ 7,305

68.52

500% EPS growth over FY2021

$ 14.61

34.26

1000% EPS Growth Over FY2021

$ 26,785

18.67

To look at Zoom & # 39 ;s plateau growth, let & # 39 ;s look at a comment from a analyst Shebly Seyrafis who estimates that "average customer numbers will increase by around 16% Q-to-Q" for the third quarter. Remember that this number will be increased from the effect of the pandemic and schools and companies that come online after the summer. At the conference call, the company emphasized that they do not "necessarily expect the dramatic increase in [average revenue per user]" and are in fact "indicative of Q3 to – Q3 and Q4 revenues will be flat" – indicating that growth is ready to plateau for several quarters . Wall Street and many investors' expectations of Zoom are too far above the reality of what the company can deliver in the future.

Zoom must fall some day

Explosive growth has been the norm for Zoom for several quarters now and many expect it to continue. A more likely scenario is that Zoom has reached its peak, at least in the near future, with revenues that have shot up behind widespread work / school from home, and with increased competitive quality and expected higher churn prices, Zoom & # 39 ;s days of income climbing to the moon seem to end. With that, the company's valuation will have to agree with reality. I wrote back in March that the pandemic would probably be a boon for business technology companies like Zoom, and it certainly has been, but this appreciation is ridiculous.

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Disclosure: I am / we are long GOOG I wrote this article myself and it expresses my own opinions. I do not receive compensation for that (other than from Seeking Alpha). I have no business relationship with any company whose shares are mentioned in this article.

Additional information: This article is for informational purposes only and should not be construed as investment advice. This article should not be the only basis for a financial decision, including the purchase or sale of shares. Every personal financial decision should be made based on your own research and assessment of your unique financial goals and investment ideals.


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