Zoom Video Communications shares (NASDAQ: ZM) rose 13.1% on August 22, while the S&P500 index fell nearly 1%. In contrast, Zoom Video Communications’ competitor Microsoft (NASDAQ: MSFT) saw a 2% decline on the same day. The stock price rose after the company announced its second-quarter results, beating consensus estimates for revenue and earnings. It reported total revenue of $1.16 billion, up 2% year-over-year, mainly due to 4% growth in corporate earnings. In addition, ZM also raised its revenue forecast for the full year 2025 (Feb. 1 – Jan. 31). Revenue is still expected to range from $4.63 billion to $4.64 billion. In addition, the board of directors approved a share repurchase program for up to $1.5 billion of common stock.

Against the current financial backdrop, ZM stock has suffered a sharp 80% decline from $335 in early January 2021 to around $70 now, while the S&P 500 has risen by about 50% over that roughly 3-year period. Notably, ZM stock has lagged the broader market over the past 3 years. The stock’s returns were -45% in 2021, -63% in 2022, and 6% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that ZM lagged behind the S&P in 2021, 2022 and 2023. consistently beats the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for heavyweights in the information technology sector such as NVDA, AAPL and SPWR and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ZM experience a similar situation as in 2021, 2022 and 2023 and perform worse than the S&P in the next 12 months – or will there be a recovery?

Zoom Video Communications’ key business metrics are the number of enterprise customers and customers contributing more than $100,000 to revenue over the past 12 months. Notably, both metrics showed growth in the last quarter. In addition, the average monthly online churn was reduced by 30 basis points year-over-year. Overall, ZM’s growth numbers are promising, leading to an average value of $75 of analyst estimates – around 10% above the current market price.

Zoom Video Communications’ revenue has increased more than sevenfold, from $622.7 million in 2020 to $4.53 billion in 2024. Much of this increase occurred due to the Covid-19 lockdowns in fiscal years 2021 and 2022.

ZM is the market leader in video conferencing. The company has a strong user base of both enterprise and online customers. In addition, its artificial intelligence initiative – AI Companion – is expected to strengthen its position in the remote video services market. Overall, Zoom Video Communications is expected to continue its growth momentum in the coming years.

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