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Zoom Shares Are Down Over 44% ... and It Might Get Worse

By Anthony Di Pizio - May 26, 2021 at 9:48AM

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The virtual-meeting platform rose to prominence on pandemic tailwinds. Can it stay lofty as the workplace returns to normal?

The pandemic sparked several new digital trends, including a ramp-up of the stay-at-home economy. Millions of jobs temporarily (and possibly permanently) migrated to other locations with the help of secured cloud-based technologies like Zoom Video Communications (ZM 0.78%), and remote work became much more mainstream. The incredible uncertainty created by COVID-19 forced employers to find a way to keep their businesses going and Zoom's value to society extended far beyond its earnings per share.

But with the pandemic subsiding in many developed countries, more workers are heading back to the office and students back to classrooms. That has some investors rethinking the company's valuation. 

Corporate meeting between a group of people in a boardroom.

Image source: Getty Images.

The return to work

In the last few weeks, the CEOs of two of the world's biggest investment banks summoned their respective workers back to company offices, at least in part.

Jamie Dimon of JPMorgan Chase went on the record saying, ''I'm about to cancel all of my Zoom meetings. I'm done with it.'' Dimon's statement is part of a scathing set of comments about the remote work trend. He expects to have at least 50% of the company's workforce back in the office by July.

Sharing similar views, David Solomon of Goldman Sachs expects workers to make plans for a return to the office by June 14 in the U.S. and June 21 in Great Britain. 

As employers of hundreds of thousands of workers worldwide, these banks have taken a leadership position on this issue that is notable.

In a March survey by Wakefield Research, 85% of office workers who were fulfilling their duties remotely indicated they want to return to the office. Over half said their top reason was the social aspect of the workplace, which is a positive sign that perhaps vaccines are giving workers more confidence.

The growth overview

Zoom is set to report fiscal 2022 first-quarter earnings on June 1, and the significance of this particular report is not lost on investors. With vaccinations ramping up, analysts expect a reduction in business-related use for video platforms to start having an impact this quarter. The U.S. Centers for Disease Control and Prevention has issued several pieces of new guidance recently, tapering restrictions and opening the door for companies to return to their physical headquarters. 

The bulls would note that Zoom Video was a growth story well before the pandemic and its financial performance suggests the virtual-meeting trend was merely accelerated -- not created -- by the response to COVID-19. 

Fiscal Year (ended Jan. 31)


Earnings Per Share


$60.8 million



$151.5 million



$330.5 million



$622.7 million



$2.65 billion


Data source: Company filings.

Between fiscal year 2017 and fiscal year 2020, Zoom grew revenue by over 1,000%. When the pandemic struck, it added an additional 325%. But more importantly, it started converting that revenue into really positive earnings

Zoom has experienced seismic shifts in its customer base over the last year, with small enterprises comprising a much larger portion of the mix. In fiscal 2021, 36% of the company's revenue was generated from businesses with less than 10 employees compared to 18% the previous year. 

Furthermore, 20% of total revenue was derived from customers that pay Zoom over $100,000 per year (on a trailing basis). The large client share was 33% the year before, and it means small businesses made up a much larger percentage of the revenue mix, broadening Zoom's income stream so it's less reliant on a small number of large clients.

The company had 467,100 paying customers as of Jan. 31, 2021 -- an increase of 470% from the same time last year.

Zooming in and looking forward

While the big picture tells an exciting tale of strong growth for a highly useful technology, recent quarterly results are flashing signs of a crash in that growth rate. 

Fiscal Quarter



QOQ EPS Growth

Q1 2021

$328.2 million



Q2 2021

$663.5 million



Q3 2021

$777.2 million



Q4 2021 (ended Jan. 31, 2021)

$882.5 million



EPS= earnings per share. QOQ= quarter-over-quarter. Data source: Company filings.

It appears much of Zoom's revenue and earnings growth were loaded up in the middle part of calendar year 2020, corresponding with the height of the pandemic. 

That's not to say the Zoom story is over, but with an EPS of $2.25 in fiscal 2021 and a share price of $326, the current price-to-earnings ratio is 144.6. This valuation places Zoom well above high-growth, profitable companies like Amazon (61 times), which is highly inflated given the fact that Zoom effectively has a single product, significant competitors, and faces the real likelihood of slowing growth. 

Despite the stock price being down more than 44% from its 52-week high, Zoom is likely to fall further unless it can deliver a significant earnings performance these next few quarters. The analyst consensus, according to Yahoo! Finance, is forecasting a $3.76 EPS for the year. That would put the trailing P/E ratio at 84 (based on the current share price) -- still extraordinarily high for a company with Zoom's prospects.

Zoom has a great business, but the triple-digit percentage growth rates of its revenue and its stock price are likely to be a thing of the past. New investors should tread carefully when considering this stock, especially at its current valuation, and keep an eye on whether paying subscribers begin to drop off as workers return to the office.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Zoom Video Communications. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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