Zoom Video Communications' (ZM 0.31%) stock price jumped 7% on Feb. 27 after the cloud-based video conferencing company posted its latest earnings report. For the fourth quarter of fiscal 2023, which ended on Jan. 31, Zoom's revenue rose 4% year over year to $1.12 billion and exceeded analysts' estimates by $20 million. Its adjusted net income declined 7% to $367 million, or $1.22 per share, but still cleared the consensus forecast by $0.40.

For the full year, Zoom's revenue only grew 7% to $4.39 billion, decelerating significantly from its 55% growth in fiscal 2022, while its adjusted net income declined 14% to $1.33 billion, or $4.37 per share. That slowdown wasn't surprising, since Zoom was expected to face tough year-over-year comparisons following its growth spurt during the pandemic. But could Zoom finally be a worthwhile investment after shedding more than 40% of its market value over the past 12 months?

Three on-site employees and their remote coworker attend a Zoom Rooms meeting.

Image source: Getty Images.

How long will Zoom's slowdown last?

Zoom expects its revenue to rise about 1% year over year in the first quarter of fiscal 2024, as well as 1% for the full year. Analysts had expected 3% growth in the first quarter and 5% growth for the full year.

Zoom attributed that weaker-than-expected guidance to the persistent currency headwinds (which shaved 2 percentage points off its revenue growth in fiscal 2023) and a tougher macro environment. But even in constant-currency terms, Zoom's forecast for 2% growth in both the first quarter and the full year would have missed analysts' expectations.

Is Zoom stabilizing its core business?

On the bright side, Zoom continues to gain larger enterprise customers, who generate more than $100,000 in trailing-12-month revenue. It ended fiscal 2023 with 3,471 of those higher-value customers, representing 27% growth from a year ago.

Zoom's gross margin also expanded by 60 basis points to 74.9% in fiscal 2023, which indicates it still has plenty of pricing power against aggressive competitors like Microsoft's Teams and Cisco's Webex. Its 12-month net dollar expansion rate, which gauges its year-over-year revenue growth per existing customer, also came in at a healthy 115% among its enterprise customers.

However, Zoom's adjusted operating margin still declined from 40.4% to 35.9% in fiscal 2023 as it ramped up its spending to attract and support more enterprise customers. But in fiscal 2024, it expects its adjusted operating margin to remain broadly stable year over year at about 36% as it reins in its spending. During the conference call, CFO Kelly Steckelberg said Zoom would focus on maintaining a "careful balance between growth and profitability" throughout the year. 

Zoom also plans to continue expanding its enterprise ecosystem with its Zoom Phone for audio-only calls and text messages, Zoom Rooms for a mix of on-site and remote attendees, Zoom Contact Center for interoffice and customer service communications, and Zoom IQ for video-based sales team calls.

Those newer services could transform Zoom into a more diversified cloud-based communication company like Five9, which it unsuccessfully tried to acquire in 2021, or Avaya. But they could also expose it to more direct competition from Microsoft, which has been expanding Teams into its own cloud-based collaboration platform.

Is Zoom's stock reasonably valued?

Zoom expects its adjusted EPS to decline 5% to 7% year over year in the first quarter of fiscal 2024 and 4% to 6% for the full year. However, those downbeat estimates still easily surpassed analysts' expectations for an 18% earnings decline in the first quarter and an 8% decrease for the full year.

At $74 per share, Zoom trades at 18 times the midpoint of its fiscal 2024 earnings forecast. That makes it seem cheaper than Avaya or Microsoft, which trade at 47 and 27 times forward earnings, respectively, but Zoom is growing significantly slower than either company. Zoom is even growing at a slower clip than Cisco, which only generates a small percentage of its revenue from Webex.

Analysts expect Cisco's revenue and adjusted earnings to grow 10% and 12%, respectively, in its current fiscal year as its core networking business accelerates again -- yet it only trades at just 13 times forward earnings.

So unless Zoom's growth accelerates again, its valuations could be compressed even further. During the conference call, Steckelberg said Zoom's "first priority" was to reaccelerate its growth through the expansion of its product portfolio, but only vaguely suggested it might achieve that reacceleration in fiscal 2025.

It's not the right time to buy Zoom

Zoom's business might stabilize this year, but there aren't any reasons to buy the stock when other higher-quality names are still on sale. Investors shouldn't buy Zoom unless its growth accelerates again or its valuations drop to bargain-bin levels.