The price of admission may be high for Zoom Video Communications (Zoom Stock Quote, Chart, News NASDAQ:ZM) but portfolio manager Paul Harris says the popularity of its video conferencing platform will mean more and more people will want to climb aboard, meaning the stock could very well go higher.
As everyone and their dog knows, Zoom meetings have become one of the primary communication methods in the age of COVID-19 and its accompanying social distancing and work-from-home requirements.
And while there are other well-used video platforms out there, from Google’s Meet to Facebook’s Messenger and Microsoft’s Skype, Zoom has attracted a lot of attention for its ease of use, suitability for a range of purposes and, of course, from a stock perspective for that rocketing share price.
Only a year old as a public company, Zoom began trading last April and has wowed investors by climbing from $60 up to now the $160 range, with much of that growth coming since late January of this year.
Whether the stock will hold onto those gains long-term is another story, one which will depend on how well the company can manage both its growing pains and issues relating to user privacy, according to Harris, partner at Harris Douglas Asset Management, who spoke on BNN Bloomberg on Monday.
“Zoom has really come into its own and people are using it all over the place,” said Harris. “When you speak from a fundamental point of view it’s trading at some ridiculous multiple of 300x earnings and that sort of thing, so I can’t speak to that side of it. But clearly, video conferencing has come into its own over the last little while as we’re experiencing right now and I think that is really going to drive the stock to new highs.”
“I think that will continue because more and more people will want to use these kinds of services over the next several months and the next several years because they see it as a valuable way of communicating with people and talking to their loved ones, which they’re kind of restricted from doing presently,” Harris said. “I think one of the issues that Zoom faces is how do you keep data and security on their side.”
“A lot of times you’re sharing screens and people are looking at things and I think they need to spend some time to make sure that that is done properly,” he said.
Harris said showing a clear revenue ramp at Zoom will be crucial to keeping investors interested. The company flexed its muscles with its latest quarterly financials delivered in early March, showing revenue of $188.3 million, up 78 per cent from a year earlier, and net income of $15.3 million or $0.05 per share. (All figures in US dollars.)
Those numbers were for the period ended January 31 and thus investors can expect much more fireworks coming with Zoom’s next earnings report due on June 2. Last month, Zoom reported a 50-per-cent rise in users over the first few weeks of April, with usage jumping from 200 million people per day in March to 300 million by April 22.