Zoom's (ZM -3.03%) stock price and growth are down significantly from their pandemic highs over the past two years. However, in this clip from "The Virtual Opportunities Show" on Motley Fool Live, recorded on May 17, Fool.com contributor Demitri Kalogeropoulos takes a look at some steps that the video teleconferencing company is taking that bode well for the future.
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Demitri Kalogeropoulos: So, that's the big question. What's the next phase of growth going to be for this company? Zoom has got a huge catalog of new customers and entities, a lot of excitement, a lot of good intellectual property, a lot of engagement on their platform. But if you had to boil down the reason why the stock is down over the last year, it's because we don't have an answer to that question yet about where they're going to continue to grow.
I'm going to be watching their engagement metrics next week in terms of how many customers they're able to continue to win. Their net dollar expansion rate, that's a number we talk about a bit here too, these service companies need to be able to convince their users to renew contracts, a bigger annual rates every year by offering more complete services. Zoom has been busy that way and that's exciting too. I guess that's a good reason to watch the stock.
Zoom has not been just sitting still over the last eight months or so as the stock price goes down, they've been visibly putting together a lot of new services like the whiteboard is a big one that they're just launching now. That's a big question of whether they can add value to their service so that they can increase these contracts over time.
The company is solidly profitable, cash flow is good. These are all good numbers and that's not likely to dramatically change with next week's earnings announcement. But adjusted earnings are going to drop. It's in that situation a little bit like with Facebook [a part of Meta Platforms (META -1.48%)] in terms of they do have a lot of costs and they're not going to be able to repeat the ridiculous leverage that they got on all that sales growth last year.
Earnings are going to look worse this year for sure. That has Wall Street nervous, so I understand that. But the big concern is what's going to change the story, I guess, for Zoom? That's not a reason I would stay away from the stock, but I guess if I had to say why people are pretty nervous about that stock right now is that it looks like it's going to have probably at least another year of just around $4 billion dollars in annual sales.
But the long-term picture is pretty good, I would say, in terms of more people moving into this remote work, telework schedule. They're a leader in that space and if they can hold onto that position, they should be great.