COVID-19 play Zoom Video Communications, Inc. ZM is down about 40% year-to-date, reflecting a general negative sentiment toward tech stocks.
Money manager Cathie Wood's Ark Invest, which holds Zoom Video in two of its ETFs — the ARK Innovation ETF ARKK and ARK Next Generation Internet ETF ARKW — is upbeat about the stock despite the weakness.
Bullish Long-Term Target For Zoom Stock: Zoom Video's stock could skyrocket to $1,500 in 2026, compounding at an annual rate of 76%, Ark Invest analyst Will Summerlin said in a new report. The valuation is based on the fund's open-source research and model.
Ark's bull- and bear-case price targets are $2,000 and $700, respectively.
The valuation is derived based on estimates for several parameters, including:
- Percentage adoption of hybrid/remote working models by global knowledge workers, excluding mainland China
- Zoom's share of global hybrid/remote knowledge workers
- Zoom's monetization rate
- Average revenue per user
Remote Work Is Here To Stay: Ark Invest expects addressable number of knowledge workers to grow at a 11% compounded annual growth rate from 489 million in 2021 to 832 million in 2026. The firm expects total unique users of Zoom to increase at a 14% annual rate to 416 million by 2026, giving it a penetration of 50%.
By 2026, Ark Invest expects at least one person on any Zoom call to be a paying user, with enhanced Zoom functionality. In bear- and bull-case scenarios, about 20% and 80%, respectively, will convert to paying users by 2026, according to the firm.
ARPU, according to Summerlin, will likely increase 26% annually during the next five years, from $113 per year in 2021 to $356 in 2026. In a best-case scenario, ARPU will grow 36% annually to $532, he added.
Upside Likely On These Zoom Business Opportunities? Ark Invest clarified that it had excluded the future monetization of AI-enabled tools, from conversational AI analytics and workflow automation to virtual secretaries/assistants.
"That said, we do believe that AI will boost the growth in industry software spending to 42% at a compound annual rate during the next eight to 10 years, catapulting it from ~$1 trillion in 2021 to ~$14 trillion in 2030," the firm said.
With productivity gains from both hybrid/remote communications and AI, Zoom should be well-positioned to monetize its user base, Summerlin said.
Photo courtesy of Zoom.
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