Zoom Video Communications (NASDAQ:ZM) is coming off of an epic year of triple-digit-percentage sales growth and has been catapulted into global consciousness by the COVID-19 pandemic. But now more than one year removed from the start of the global health crisis, the Zoom boom is over. Already with an enterprise value (market cap minus cash and equivalents) of $110 billion (compared to less than $20 billion at the start of 2020), Zoom stock reaching $1 trillion by 2030 -- a tenfold total return, or an average compound annual growth rate of about 26% -- might seem like a longshot.  

However, Zoom is disrupting a massive global communications industry, and as a cloud software business, it has additional capabilities it could unlock that a traditional telecom business cannot. Don't write off the possibility of this stock delivering another tenfold return in the next decade.

Don't sweat the valuation -- look at what's at stake

When it comes to valuation, Zoom carries a premium price tag in all respects. Even down 34% from all-time highs reached last autumn, shares trade for 73 times trailing-12-month free cash flow and 28 times expected current year sales. In fact, not only is Zoom trading for several decades' worth of current annual revenue, it's also valued for many multiples more than total global annual spending on video conferencing services. Various estimates expect global spend on internet-based video communications to reach $50 billion or so a year, but not until 2026.

Someone sitting on a couch using a tablet for video conferencing.

Image source: Getty Images.

When it comes to technology leaders, it's commonplace for them to be valued multiple times higher than the global annual spending on the industry they participate in. Why? For one reason, business valuations are calculated using future expected profits, the expected rate of growth of said profits, and the degree of certainty with which they'll be generated. For example, Alphabet has a market cap of $1.68 trillion, even though global digital advertising (which is 80% of Google's total revenue) is expected to be $455 billion this year.

The point is this: Don't balk at Zoom's lofty valuation just because it's already far larger than the industry it's pioneering. Besides, consider what's up for grabs here. The telecom industry soaks up $1.5 trillion a year from businesses and consumers. If Zoom can continue to expand on its capabilities, some of this massive market could go the way of video in the next 10 years -- and just a small fraction of $1.5 trillion will move the needle in a big way.

Lots of cash now, an unimaginable amount of cash later

But can Zoom really execute on such an ambitious plan? After all, its core video conferencing service is slowing down as effects of the pandemic ease. Revenue growth is expected to be about 50% this year, which implies quite the cool-off from the 191% growth rate notched in the first quarter of fiscal 2022.  

But remember that Zoom doesn't fit within the definitional confines of a communications service. This is a cloud-based software service, which means it has flexibility -- like how it recently announced the acquisition of a real-time machine-based translation start-up called Kites GmbH. It's also been promoting its Zoom Phone service for businesses to provide a more flexible telephone system than what's offered by legacy telecoms. Zoom has an incredible $4.69 billion in cash and equivalents and zero debt on balance; compare that to net debt positions most telecom operations have these days. Put another way, Zoom is a nimble software technologist in the driver's seat of disrupting how people stay in touch.

This trend isn't going to suddenly reverse, either. Zoom generates massive amounts of cash every quarter. Its free cash flow profit margin was 47% in Q1, good for $454 million in extra cash over and above what it needed in its operations. That tiny real-time translation start-up acquisition could be just the beginning if and when Zoom decides to start flexing its muscles.  

Between a growing video conferencing market, a massive telecom industry getting upended by cloud computing, and the cash to keep the pedal to the metal, I wouldn't be at all surprised if Zoom can stoke the flames of about 26% a year annual average growth through 2030. Zoom as a $1 trillion business simply isn't all that far-fetched an idea in a post-COVID-19 world.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.