Zoom Video Communications, the popular video conferencing company, has managed to maintain strong sales to businesses amidst an uncertain macroeconomic environment. However, caution is advised as various factors such as corporate layoffs and economic weakness could potentially impact spending. This insight comes from a research note by KeyBanc’s Thomas Blakey.
Despite these challenges, Zoom (ticker: ZM) has exceeded expectations with its quarterly earnings and revenue, leading to a rise in its stock value during premarket trading on Tuesday. One important factor to consider is the pressure Zoom faces in regards to ‘downsells’ among enterprise clients. This refers to subscription downgrades to lower-value deals. Blakey acknowledges that while this downsell pressure exists, Zoom continues to benefit from upsells, including bundles such as Zoom One and Phone, which help offset the downsells.
Zoom’s success in attracting new customers stems from its product bundles, incorporating advanced technologies like artificial intelligence. With Microsoft’s recent foray into the premium video conferencing market with AI integration in its Teams product, Zoom is facing formidable competition. Nonetheless, optimism remains within the investment community due to Zoom’s robust financial position, boasting a $6 billion balance sheet and an attractive valuation.
RBC Capital Markets’ Rishi Jaluria maintains an Outperform rating on Zoom stock with a $95 target price. While the visibility of a reacceleration in growth remains uncertain, the long-term story for Zoom looks promising.
Overall, Zoom has weathered the storm caused by the Covid-19 pandemic, albeit with a substantial drop in stock value. It now seeks to carve out a path for sustained success in a changing landscape. Only time will tell if Zoom can maintain its position as a dominant player in the video conferencing industry.