Zoom Slowing in Revenue, Ready to Ramp M&A

Although there doesn’t appear to be a clear end to the pandemic, many companies that benefitted handsomely from stay-at-home orders are starting to see their businesses plateau. One of the most central to the COVID-19 story is Zoom Video Communications, Inc. (ZM), which has seen its share price come back down to earth considerably over the last year or so.  

Zoom hasn’t just been coasting on its flagship video conferencing software, however. The technology firm has invested in several initiatives to defend its pipeline, and has plans for more merger and acquisition (M&A) activity moving forward.  

Spelling out his neutral hypothesis on the stock is Ryan Koontz of Needham & Co., who explained that Zoom’s revenue growth has been slowing, following its huge enterprise takeover during the earlier stages of the pandemic. The company has run into massive quarterly comparisons to beat, and it will most likely take some time before its earnings per share expectations begin to ease.  

Koontz rated the stock a Hold, and did not assign any price target.  

The analyst wrote that while Zoom’s Phone product has been doing well, Rooms has run into challenges brought on by uncertain pandemic–linked trends. In other words, no one knows how much work-from-home, hybrid, or return-to-office direction most businesses will take for their employees. Zoom Rooms is an integrated hardware/ software service that makes Zoom conferencing more seamless for its more established users.  

Additionally, a new product, Zoom Events, is slated for launch later this year.  

To compete with its main foe, Microsoft Teams (MSFT), Zoom will most likely begin to ramp up its M&A activity. This strategy will allow Zoom to add employees at a far more rapid rate, as well as give it increased technological capacity for its software offerings.  

Capacity Contraints

Data centers have become nearly indispensable, handling the massive amount of networking, cloud computing, and server-based infrastructure that companies like Zoom require to operate. Unfortunately for ZM, construction of its data center has not come as quickly as was initially anticipated. Obstacles like supply chain constraints and prevention of service disruptions have been identified as catalysts by Koontz.  

Setbacks at this level are sure to negatively impact gross margins heading toward future quarterly earnings reports.  ZM is expected to announce its upcoming earnings on March 7, 2022.

On TipRanks website traffic data, zoom.us has seen a considerable drop off in unique visitors from all devices. Quarter-over-quarter, total visits are down 38.13%, while the share price has itself declined 37.87%. This is not surprising, as December and the holiday season are expected to bring lulls to Zoom’s user growth due to workers’ vacations, but visits to zoom.us have yet to pick back up.  

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