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Zoom Stock: Down 45% From Its High, Is It Time to Buy?

By Daniel Sparks - Apr 20, 2021 at 8:36AM

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Opportunistic investors may want to take a closer look at this hot growth stock.

Zoom Video Communications (ZM 8.52%) stock has been taking a beating lately. Shares of the video conferencing platform provider have nearly halved from an all-time high of about $589 late last year. Is the stock's massive pullback a sign of worse things ahead for the company? Or could this be a good time for the opportunistic investor to buy?

While Zoom shares certainly aren't a bargain today, the stock is starting to look attractive. Indeed, it may even be a good time for investors to buy shares of the growth stock

A man using Zoom to videoconference with colleagues on his computer.

Image source: Zoom Video Communications.

Incredible momentum

It's no secret that the rising adoption of virtual work as a result of the COVID-19 pandemic has been a major tailwind for Zoom's business. Revenue in Zoom's fiscal 2021 (a 12-month period ending Jan. 31, 2021), surged 326% year over year to $2.65 billion. This blew past the company's original forecast for fiscal 2021 revenue to be between $905 million and $915 million. 

Even more, the company's highly scalable business model meant profitability improved even more rapidly. Zoom's fiscal 2021 net income was $671.5 million, up from $21.7 million in the year-ago period.

The video conferencing specialist wrapped up the year with 467,100 customers who had more than 10 employees, up 470% year over year. Its customers contributing more than $100,000 in trailing-12-month revenue rose 156% year over year to 1,644.

Looking ahead

Of course, the concern investors have is that Zoom could struggle to grow rapidly this year as it faces tough year-over-year comparisons from last year. But investors should note that the company is guiding for fiscal first-quarter revenue to be between $900 million and $905 million, up from just $328 million in the year-ago period. 

Further, Zoom guided for revenue of $3.76 billion to $3.78 billion this year. That's over a billion more of incremental annual revenue compared to fiscal 2021. Management's confidence in significant growth when it is up against such tough comparisons highlights how resilient management believes its business model is.

Don't forget this key point

While Zoom's recent business momentum and management's confidence in continued strong growth this year are reasons to be optimistic about the stock over the long haul, probably the most important point is this: Zoom was growing rapidly before the COVID-19 pandemic. Its high growth, therefore, isn't dependent on a pandemic that has an inflated level of people working from home. For the fiscal year ended Jan. 31, 2020, for instance, revenue rose 88% year over year.

While investors should certainly expect Zoom's growth rate to decelerate substantially throughout fiscal 2022, the company's pre-COVID-19 momentum suggests these are still early days for the company. Given the company's strong momentum and the scalability of its lucrative business model, the stock's big pullback from its all-time of about $589 late last year may represent a good buying opportunity for investors willing to hold shares for the long haul.

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