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It's Not Too Late to Buy Zoom Video

By Rick Munarriz – Apr 3, 2020 at 10:00AM

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The videoconferencing darling has shed 26% of its value since peaking earlier this week, and that's a dinner bell.

One of this year's biggest gainers is on sale, or at least as close as you can get to a pullback. Zoom Video Communications (ZM -0.03%) has become a poster child of sorts for the effects of the coronavirus crisis. It's the videoconferencing platform of choice for businesses, schools, and families that need to communicate with one another but can no longer do it in person.

Zoom stock has nearly doubled in 2020, but it wrapped up Thursday's trading session at its lowest close in two weeks. It has retreated 26% since hitting an intraweek high on Monday. Investors aren't exactly getting in on the ground floor here. The stock is still trading 79% higher in this otherwise brutal year for equities, and it has more than tripled since going public at $36 last April. However, this is a lot like an elevator going up 16 floors before coming back to pick you up on the 12th floor: Opportunity is relative, and that's the absolute truth.

Zoom Video conference taking place with two teams in different conference rooms

Image source: Zoom Video.

Zoom goes the dynamite 

Zoom's recent swoon can be tied to new security concerns and a longtime partner announcing its entry into the streaming niche. It's easy to tackle both setbacks. Let's start with RingCentral (RNG -1.15%) making a push into video. The provider of portable communications solutions for businesses is a growing tech star (and also one of this year's big winners). But it's a small fry compared with the tech giants that have taken Zoom head-on and lost. RingCentral isn't going to slow Zoom's growth trajectory here.

Tackling the other piece of this week's bearish puzzle takes a little more time to break down, but I think bulls will like the results. Zoom has exploded in popularity. The service that was hosting no more than 10 million participants (largely corporate meetings) in any given day in December now routinely tops 200 million free and paid users. When is the last time that you saw a platform go from 10 million active users to 200 million in just three months? 

There will be growing pains, and for Zoom, it's that a platform built for businesses that presumably have some form of IT security backstop has been catapulted into the mainstream masses. It's a wild new normal for Zoom as hackers and ne'er-do-wells attack the integrity of the platform. Zoom will solve this, and for now it's focusing its engineers to work on security and privacy solutions before tackling new features.  

Bears may argue that revenue isn't popping 20-fold for Zoom sequentially just because its user base has expanded by that factor. A lot of its users are free consumer accounts. Whether it's the 90,000 schools across 20 different countries taking Zoom up on its offer for free virtual classrooms, or families taking to the platform to stay in touch with their loved ones, Zoom's explosion in usage isn't going to just go away when folks can return to the classroom, workplace, and awkward family picnic. 

There are now a lot of people gaining proficiency in Zoom, and what may be low-value high school students today will be thriving adult customers and wealth creators tomorrow. You don't have to own Zoom, but don't be in denial about the lasting impact of the platform's current success. 

Zoom is killing it right now, and it doesn't really matter that the stock isn't cheap. Folks thought it was expensive at half today's price a little more than three months ago. Zoom is too popular right now, but when did that become a problem? It's one of the biggest winners of the recent IPO class, and it's a winner that will keep winning.

Rick Munarriz owns shares of RingCentral. The Motley Fool owns shares of and recommends Zoom Video Communications and recommends the following options: short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Zoom Video Communications Stock Quote
Zoom Video Communications
$77.52 (-0.03%) $0.02
RingCentral Stock Quote
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