Shares of Zoom Video Communications (NASDAQ:ZM) are trading at about $124 at the time of this writing. The stock has returned over 200% in less than a year, compared to a 17% decline for the S&P 500.
Zoom has outperformed several high-profile IPOs in the tech space, including Slack, Uber, and Lyft, that went public in 2019. The company made its debut last April at $36 per share, and the stock closed its first day of trading up 72%.
However, like most other growth stocks, Zoom investors have also experienced a lot of volatility in the past year. Most recently, it closed at a record high of $125 on Mar. 5, on the back of stellar quarterly results, before falling victim to the coronavirus-fueled sell-off. Let's check in on the company's progress and see what potential it offers going forward.
Revenue growth of 88% in fiscal 2020
Zoom continues to gain significant traction in the enterprise collaboration segment. It provides a video-first communications platform as well as web-conferencing services to companies. It's also a one-stop-shop for virtual business meetings, webinars, instant messaging, and video calls.
The company ended fiscal 2020 with sales of $622.7 million, good for growth of 88% year over year. It exited the fourth quarter with an annualized revenue run rate of approximately $750 million. The number of customers with revenue of $100,000 or more grew 86% to 641 at the end of fiscal 2020.
The company reported a non-GAAP operating margin of 14.2%, up 900 basis points year over year, while free cash flow was up 397% to $114 million. Those results helped Zoom report its fourth consecutive year of positive free cash flow and adjusted operating income.
Zoom has launched several products over the years, such as the Zoom Phone and Zoom Chat, that aim to deliver a streamlined user experience and modernize employee interactions, making collaboration between teams easier. These products have helped Zoom Video drive top-line growth.
The Zoom Phone was launched in Mar. 2019 and is a key component of the company's unified communications platform. According to the recent earnings call, this product has helped the company significantly expand its total addressable market. The Zoom Phone now has 2,900 customers who have over 10 employees.
The company ended fiscal 2020 with a run rate of 230 million Zoom Phone minutes, and the company is well poised to expand its footprint with existing customers thanks to such product offerings.
Zoom stock has held its own in a bear market
We have seen how the dreaded coronavirus pandemic has pushed indexes such as the Dow and S&P 500 lower by as much as 30%. COVID-19 is expected to weigh heavily on consumer demand and spending as governments around the world will have to lock down major cities to contain the spread of this virus.
Investors are spooked as China's economic indicators have declined significantly. In the first two months of 2020, the country's fixed-asset investment fell 24.5%, while industrial production slumped 13.5% and retail trade plunged 20.5% year over year. Several other countries, including Italy, Spain, and now France, are likely to report declining economic metrics in the next quarter as well.
We have also seen airline stocks take a massive hit, while shares of restaurants, coffee chains, and travel companies are all experiencing a sell-off. But Zoom shares are trading just a dollar short of their all-time closing high, even in this tumultuous market.
As employees are asked to work from home and avoid public transit, demand for collaboration tools has increased, and this might very well boost Zoom's revenue going forward.
Why Zoom is a solid long-term bet
While Zoom stock has already more than tripled from its original IPO price, it still has the potential to create massive wealth for long-term investors. The enterprise collaboration segment is expected to top $48 billion in 2024, up from $31 billion in 2019.
Analysts expect Zoom to grow its top line by well over 30% annually for years, and many businesses are now looking to cut costs and increase employee efficiency by going remote. Such a digital transformation bodes well for players in the space, including Zoom.
Investors may be worried about the stock's rich valuation. It is trading at 37 times 2021 revenue estimates and has a forward price-to-earnings multiple of nearly 280. But the company's stellar results, total addressable market, and major customer wins should help it sustain its growth and live up to those high expectations.