It may take time for many companies to shake the label of "pandemic stock." One company many associate with the pandemic is Zoom Video Communications (ZM 3.09%). That makes sense in a way -- COVID-19-related lockdowns triggered an abrupt shift to remote work, which in turn led to rapid adoption of the company's services.
That said, it seems as if many investors have written off Zoom in a post-pandemic world, and its stock price movement shows that. Over the past year, its stock price has crumbled 73%. Hovering around $80 per share, it's a far cry from the near $600 per share high it once enjoyed during the pandemic.
As the global economy continues to reopen, the videoconferencing leader can expect to face some growing pains for the foreseeable future. That's completely understandable, but as long-term investors, we should be more concerned about Zoom's business prospects several years out. Will the company ever return to its pandemic highs, or is it all downhill from here? Let's observe its current situation and see where the company could be five years from today.
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Zoom today versus five years from now
As expected, the company's growth dragged in its second quarter compared to a year ago. Its total revenue rose 7.6% to $1.10 billion. That's quite the slowdown from its 54% growth in the same quarter last year, and during the same timeframe, its adjusted earnings per share declined 22.8% from $1.36 to $1.05. For the full year, Wall Street analysts forecast its top line to expand just 7.2% to $4.39 billion. Analysts also expect its adjusted earnings per share to drop 26.6% to $3.72 compared to $5.07 last year. Although Zoom's growth picture could be temporarily rerouted, there's still plenty to like about the videoconferencing company.
Not only has Zoom proven to be an extremely profitable and cash-flow-positive business, but it also continues to expand its customer base -- dismissing the notion that remote work (and continued use of its products) is on its way out. In its second quarter, the company's number of customers increased 18% to 204,100. Furthermore, its customers that contribute more than $100,000 in trailing-12-month revenue climbed 36% to 3,116. A spike in clientele shows that remote work is sticky and expected to last. Today, 16% of companies are now fully virtual, and 66% of employees work remotely at least part-time. An Upwork study revealed that roughly 36 million of America's workforce will work remotely by 2025, representing an 87% uptick from pre-pandemic levels.
Five years from today, we'll be more than halfway through 2027, which means Zoom will be in its fiscal year 2028. Let's say that the company can generate $7.5 billion in total revenue by then, which indicates a compound annual growth rate (CAGR) of 10.6% from its fiscal year 2022. If its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin and enterprise value-to-EBITDA multiple both remained consistent with their trailing-12-month values of 20.5% and 21%, respectively, the stock's market capitalization would reach $32.4 billion, which is significantly higher than today's $23.8 billion market cap. I could even argue that those are conservative estimates -- as the videoconferencing company continues to mature, its operating margins will likely improve as well.
Is Zoom stock a good long-term buy?
Zoom stock offers investors a nice margin of safety today and plenty of upside over the long run. The company will face some growing pains over the next year or so, but its long-term business trajectory remains intact. Remote work is clearly here to stay, and Zoom is one of the top players in the videoconferencing arena. Long-term investors should definitely give the company a good look -- buying at today's lows could lead to massive gains in the years to follow.
