Zoom Video Communications (ZM 0.05%) has seen its stock race to new highs in 2020 amid the coronavirus pandemic. As people and businesses scrambled to find ways to communicate safely and remotely, Zoom Video offered a convenient and affordable platform at just the right time.

However, with people beginning to be vaccinated against COVID-19, the need for video communication options may be reduced going forward. Such a trend could leave Zoom Video stockholders wondering if the strong returns the company has been generating these past few quarters will be hard to maintain.

Looking at the bull and bear arguments for Zoom Video could help investors decide whether to stay invested in this currently hot tech stock.

Man in headphones on video conference while at home.

Image source: Getty Images.

The case for Zoom Video

As most already know, Zoom Video was one of the darlings of the coronavirus pandemic. Unlike most companies, the stock price for Zoom Video shot higher in February as people and businesses turned to its video app to connect with others. 

Zoom stock is up by around 500% year to date. The latest earnings report showed an almost 370% surge in revenue. Net income grew 10-fold, albeit from a low base point.

ZM Chart

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Forecasts for the fourth quarter came in with revenue growth above 315% year over year. Analysts projected that diluted earnings per share (EPS) would rise by at least fivefold over the same period.

Moreover, as far as investors can tell, Zoom Video holds up well against its most prominent competitors. Skype is owned by Microsoft and LogMeIn, the owner of GoToMeeting, is a private company. Microsoft does not provide specific revenue and earnings figures for Skype. Hence, the major competitor that provides data is Cisco, the company that operates Webex.

However, Cisco only offers a limited view of Webex's performance. In the latest quarter, management reported that Webex usage had almost doubled, to about 600 million since March. However, the division where it resides, applications, experienced an 8% decline in revenue year over year. This is quite the opposite of Zoom, which has increased revenue with comparative ease.

Why investors may want to take a pass on Zoom Video

Still, we might have reached a point where Zoom will struggle to sustain investor interest. Zoom Video stock was trading at one point this year above 750% higher. The stock partially sold off in October as successful vaccine trials led to fears that people would not use the platform as often.

Admittedly, COVID-19 has given companies time to test the concept of online meetings. From these trials, it appears likely that this form of engagement is here to stay. However, one can still assume that interest in using the platform will fall as more meetings are again allowed to occur in person.

For the upcoming fiscal year, which begins on Feb. 1, analysts forecast that Zoom Video earnings will rise by only 3%. Even if this forecast is too low, it is unlikely to match the predicted eightfold increase for the current fiscal year.

Additionally, revenue forecasts approximately doubled in the previous three fiscal years. Thus, we can assume from the revenue growth of more than 300% this year that the company has realized much of its anticipated revenue gains early.

Moreover, investors may balk at paying nearly 130 times forward earnings at a time when growth will almost certainly slow.

Is Zoom Video a buy?

Although Zoom calls are likely here to stay, I do not think investors should speed ahead to buy this stock.

I realize that when the final fiscal 2021 numbers come out early next year, the company will almost certainly post massive revenue and earnings growth. Still, COVID-19 may have front-loaded much of this increase. This is probably why analysts predict earnings growth of only 3% in calendar year 2021.

I expect growth to accelerate again starting in calendar year 2022. Nonetheless, it may not bring enough of an increase to justify the current valuation. Moreover, video conferencing is a narrow-moat business. Hence, it remains unclear how long Zoom Video will race ahead of its numerous peers.

As video conferencing becomes a commodity, video conferencing companies like Zoom Video will struggle to hold on to current valuations. Though Zoom lives up to its name now, in time, investors could watch it sputter.