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Zoom Video Communications is a relative newcomer to the public company sphere. The company’s initial public offering (IPO) occurred in April 2019 and within 2 months, the stock increased by about 185% — it zipped up from $36 per share to $102.77 per share. It’s a profitable company in an emerging industry, and its leadership team focuses on differentiating the organization from the other major players in the sector.
Eric S. Yuan, Zoom’s president and CEO, acknowledges some challenges that await his company both in the immediate and distant future. But don’t allow that analysis to spook you into avoiding the stock altogether. Instead, view it as an opportunity to examine the company and its stock performance to see if it’s right for you.
Overview: Company and Stock History
Yuan founded Zoom (ZM) in 2011 after a 14-year career at Cisco Systems, Inc. as corporate vice president of engineering. He arrived at Cisco as part of the company’s WebEx acquisition in 2007.
Yuan vowed to improve the customer experience by developing better, more reliable and easy-to-use video conferencing software and launched Zoom in 2011. The Zoom platform is compatible with mobile devices, desktops, telephones and conference room systems.
Zoom is an emerging company in a growing industry that understands the connectivity of the global workforce and the trend of individuals who work remotely. Companies must focus on innovation and convenience — a formula Yuan and his executive team embrace and believe differentiates Zoom from others in the sector.
The company uses the terms “frictionless” and “happiness” throughout its marketing collateral, and aspires to deliver a user-friendly connectivity tool: a video communication product that helps companies control spending by limiting travel expenses and expedites the decision-making process. Yuan believes the “happiness” component starts with internal employees: Happy employees create happy customers.
Zoom filed its IPO documentation in March 2019 when the company was profitable — a rarity for tech companies at that stage. The company went public the following month on the Nasdaq Composite with a per-share price of $36. By any measure, Zoom had an impressive trading debut and stands as one of the best IPOs of 2019. The stock price escalated 81% on that first day and closed at $62 — a 72% surge. Since then, Zoom stock has had a steady ascent. Later, it increased 199% from its IPO price to $107.34.
Future Outlook For Zoom
Zoom estimates that the video conferencing industry will grow to $43 billion by 2022. Yuan thinks his company is uniquely positioned to help spearhead that growth despite formidable competition from others in the industry. Zoom gives its customers the alternative to move beyond the antiquated, costly and often unreliable nature of legacy communication tools.
Zoom understands the changing nature of the global workforce and believes that communication tools must keep pace. The company’s video-first communication platform operates under a simple 6-step process:
- Keep existing customers happy.
- Drive new customer acquisition.
- Expand within existing customers.
- Continuously innovate Zoom’s video platform.
- Accelerate international expansion.
- Grow its partnership ecosystem and expand the platform.
Zoom Stock: Why Buy?
You don’t have to spend much time experiencing Zoom’s corporate culture to conclude that its whimsical approach to messaging is a stark contrast to the buttoned-up messaging of other organizations.
The company’s values and forward-thinking posture hints at an innovative company comfortable in its own skin. That alone doesn’t make its stock worth buying but it does provide insight into the company’s mentality and how that might play into the viability of investing in it.
Here are some tangible reasons why you might want to look into buying Zoom stock.
Zoom has carved out a unique niche in the marketplace after only 8 years in business. Zoom built its video-first platform from the ground up and stayed away from aging technological infrastructure. The company touts its team of extraordinary engineers who developed the platform and technology that exceeds industry standards.
The evolving global workforce mandates that organizations have the capacity to connect people in a way that’s as practical as face-to-face encounters. Zoom has demonstrated its ability to provide technology and products that are easy to use.
Strong First-Quarter Earnings
Zoom’s revenue totaled $122 million in its 1st quarter as a publicly traded company , an increase of 103% year over year. Yuan acknowledged the company’s highly efficient business model and disciplined investment approach as contributors to the stock’s value.
Zoom demonstrates a stark difference from its competitors. It offers a proprietary multimedia router that optimizes for the cloud and separates content processing from transporting and mixing streams. In other words, it’s a reliable and high quality product that works.
Zoom Stock: What to Consider Before Buying
Be mindful of these concerns if you’re interested in purchasing Zoom stock.
It’s easy to look at Zoom’s immediate gains and naturally conclude that growth will continue. But history tells us that changes can happen fast in the marketplace. It’s difficult to get a firm grasp of how it might perform, particularly for companies with a short track record.
Volatile Consumer Base
Zoom is a subscription-based business. The company relies on fees from those subscriptions and is susceptible to declines in consumer interest, either in its product or the video conferencing sector in general.
Delayed Response to Change
Alterations occur all the time in technology, and it’s often time-consuming to integrate those changes into existing infrastructure. Zoom acknowledged in its S-1 filing that it may not be able to respond to rapid technological changes, extend its platform or develop new features.
Zoom stock had an impressive trading debut and has maintained that momentum. But some analysts look at the almost $18 billion in market capitalization and the $330 million in revenue from it most recent fiscal year. That results in a 55 price-to-sales ratio — a figure that’s too high for some analysts.
How to Buy Zoom Stock
You’ve heard the buzz and think you might want to buy Zoom. What’s next? You can participate in the stock market as long as you’re armed with the necessary information. Here are a few steps to help you invest in Zoom. (Hint: It’s a lot like the steps involved in purchasing Nintendo stock.)
- Conduct Your Research
You might have read press clips or seen brief news stories about Zoom. But aim to dig deeper than just the superficial components. Find out who its competitors are and the future prospects of the industry. This knowledge base show you what makes the company tick.
- Choose a Broker
Part of your research should involve selecting a broker. There are online brokers you can use, or you can establish a more personal relationship with one of your local brokers at a brick-and-mortar facility. Price varies with either choice, but it’s crucial that you’re comfortable with the broker you select.
- Establish and Build a Relationship With a Broker
Build rapport with your broker if you decide to use a brick and mortar. Make sure they learn about your goals and establish parameters. Ultimately, establishing a comfort level with the right broker is an important step toward a more prosperous investment journey.
- Fund an Account
Interested in an online brokerage? Create an account and link your banking information to transfer funds or wire money into the account. Either way, once the funds are deposited, you’re ready to start trading.
- Finalize Your Zoom Stock Purchase
Zoom is traded as ZM on the Nasdaq. You’re now ready to purchase Zoom stock at the current per-share price, less any fees or related costs using either your online or your neighborhood broker.
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Are You Ready to Zoom?
Yuan has infused his persistent, can-do attitude into his company. It’s paid off — not just with a stellar product, but with its incredibly successful IPO last April. That performance solidified the company’s position as a major player in the industry and made investors of all levels take notice.