4 Billion Reasons to Get Excited for Zoom Stock

Despite falling from its peak in the pandemic, investors shouldn't give up on Zoom (ZM 3.49%) considering the ongoing shift and demand for remote and hybrid work. In this clip from "Ask Us Anything" on Motley Fool Live, recorded on May 31, Motley Fool contributor Demitri Kalogeropoulos explains how Zoom is still poised for growth potential ahead.

Demitri Kalogeropoulos: Zoom stock, itself, was up 23% in the wake of this earnings. Let's take a quick look at why. This is obviously one of the biggest growers through the earlier phases of the pandemic. Zoom came into the pandemic with annual sales of around $600 million and that number shot up to over $4 billion in a period of less than a year and that's amazing. I can't think of another business that's had that kind of success moving from under $1 billion to almost $5 billion business in months. But then obviously the stock collapsed toward late 2021 and through most of 2022. The big question was, how are they going to grow again? Everyone's moving back to in-person meetings, workers are going back to the office, and things like that, so this whole pandemic idea, I guess, Zoom was the poster child for where that spectacular growth that we had through most of 2021. Then, all of this started crashing back down to earth. It's like maybe this growth was all just a flash in the pan. But I think Zoom said a bunch of things that helped ease those concerns. Basically, they're still growing their business over double-digit rates. Sales were up 12% this quarter. They've done a lot of good growth. If you dig into that report a bit, their large client base is growing at about 24% rate, and this is for big enterprises that pay over $100,000 a year in their contracts. They are attracting these bigger businesses. I'm sure they're losing a lot of yoga studios and all these businesses that were temporarily on the system and probably not paying much or anything for their services. This big push is still happening. There's still a lot of remote work and telework and hybrid work going on, and so that whole idea is still a big fundamental shift I think in the market that's adding a lot of spending. Enterprises are still very eager to spend in ways that help them add flexibility to their workforce and add efficiency to their business. Zoom is also generating a whole lot of cash. Their operating cash margin was 49%, so there's not a challenge there. It's not like they're losing money. They also were very bullish about the idea that they're going to spend a lot of money on R&D over the next year or so, so that they can build out that platform and make service more profitable. I think that's great in a lot of ways. That's telling me that there's still a lot of demand for their services, but also these boards are still looking and they're seeing a lot of opportunity to invest all this cash, like Brian mentioned, that is sitting on the books of all these companies. It's not like companies are retrenching, and Zoom is a good example that there are innovative products that people are still building. I think that's a good sign for the economy and the growth stocks that have been hit so hard over the last five months or so.