Shares of Zoom Video Communications, Inc. (ZM - Get Rating) have plummeted 43.4% over the past year to close its last trading session at $66.62. Nonetheless, the company has recently engaged in several partnerships and acquisitions to enhance its users’ experience. With this in mind, let’s explore whether ZM remains a worthwhile investment.

On May 16, ZM announced its partnership with and investment in Anthropic, a firm devoted to Artificial Intelligence (AI) safety and research. By integrating Anthropic’s AI assistant, Claude, to connect with ZM’s platform, the partnership would further strengthen ZM’s federated approach to AI.

In addition, on April 14, the company announced its acquisition of Workvivo, a modern and feature-rich employee experience platform provider. Workvivo combines advanced internal communication and engagement tools, a social intranet, and an employee app into one central hub, which forms the core of a company’s digital ecosystem.

Workvivo’s offering has experienced significant growth, with triple-digit growth in the past three years. ZM intends to leverage its solid communications and engagement features to enhance user experience. By doing so, organizations could fully unlock their employees’ potential and transform their company culture in a hybrid world.

Software company ZM’s continued strategic investments in innovations to help make interactions and communications more meaningful and effective have enabled the company to raise its fiscal year 2024 outlook.

The company now expects its total revenue to range between $4.47 billion and $4.49 billion. Its non-GAAP income from operations for the full year is expected to be between $1.63 billion and $1.65 billion. Furthermore, the anticipated non-GAAP diluted EPS for the fiscal year will likely fall between $4.25 and $4.31.

Here is what could shape ZM’s performance in the near term:

Solid Financials

During the fiscal 2024 first quarter that ended April 30, 2023, ZM’s revenue increased 2.9% year-over-year to $1.11 billion. Its gross profit grew 3.6% from the year-ago value to $841.42 million. Moreover, the company’s non-GAAP income from operations rose 5.7% from the prior year’s quarter to $422.32 million.

In addition, ZM’s non-GAAP net income came in at $353.25 million, up 11.9% year-over-year, while its non-GAAP EPS stood at $1.16, indicating a 12.6% year-over-year improvement.

Solid Historical Growth

Over the past three years, ZM’s revenue grew at a 74.8% CAGR. The company’s EBITDA and normalized net income rose at CAGRs of 44.3% and 43%, respectively. In addition, ZM’s total assets increased at a 60.4% CAGR during the same period.

Favorable Analyst Estimates

Analysts expect ZM’s revenue to increase 1.4% year-over-year to $1.11 billion for the second quarter ending July 2023. The company’s EPS for the ongoing quarter is expected to rise 1.1% from the previous year’s period to $1.06. Moreover, the company topped the consensus EPS estimates in all four trailing quarters, which is impressive.

Furthermore, ZM’s revenue and EPS for the next fiscal year (ending January 2025) are expected to grow 4.7% and 1.5% from the prior year to $4.70 billion and $4.39, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, ZM is trading at 15.39x, 30.5% lower than the industry average of 22.14x. Its forward EV/EBITDA multiple of 8.19 is 43.2% lower than the industry average of 14.42x. In addition, the stock’s forward Price/Book of 2.59x is 35.1% lower than the industry average of 4.00x.

High Profitability

ZM’s trailing-12-month gross profit margin of 75.08% is 52.5% higher than the industry average of 49.24%. Moreover, its trailing-12-month levered FCF margin of 35.09% is 400.5% higher than the industry average of 7.01%. Also, the stock’s trailing-12-month cash from operations of $1.18 billion compares to the $55.30 million industry average.

POWR Ratings Show Promise

ZM’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ZM has a B grade for Value, consistent with its lower-than-industry valuation. The stock also has a B grade for Quality, in sync with its higher profitability relative to its peers.

ZM is ranked #22 in the 81-stock Technology – Services industry. Click here to access ZM’s Growth, Momentum, Stability, and Sentiment ratings.

View all the top stocks in the Technology – Services industry here.

Bottom Line

By consistently investing in strategic collaborations and acquisitions to enhance meaningful interactions and effective communications, ZM has experienced a positive shift in its outlook. Given the company’s robust financial performance, cheap valuation, and attractive profitability, ZM still appears to be a worthwhile buy now.

How Does Zoom Video Communications, Inc. (ZM) Stack Up Against Its Peers?

While ZM has an overall POWR Rating of B, equating to Buy, one could also check out other stocks within the Technology – Services industry, which are overall A (Strong Buy) rated: Teradata Corporation (TDC - Get Rating), Box, Inc. (BOX - Get Rating), NetScout Systems, Inc. (NTCT - Get Rating).

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ZM shares were trading at $66.68 per share on Monday afternoon, up $0.06 (+0.09%). Year-to-date, ZM has declined -1.56%, versus a 13.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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