Size of the text
Benchmark analyst Matthew Harrigan initiated coverage on Zoom on Thursday and gave it a Hold rating.
courtesy of Getty Images
Purchasing Zoom Video Communications stock at its current price is a leap of faith, assuming that the firm will convert the massive increase in its user base during the epidemic into enough long-term revenue and profit growth to warrant the company’s already stratospheric value. Matthew Harrigan, a benchmark analyst, warns against taking the risk.
On Thursday, Harrigan initiated coverage of Zoom (ticker: ZM) with a Hold rating. According to Harrigan, the stock already signals “heady growth” in terms of both the size of its addressable market and the amount of market Zoom can take. In a research note, he stated that Zoom CEO
Yuan, Eric
might “defy doubters” by expanding Zoom’s market share and potential market beyond videoconferencing to include telephony and other services. “Immediate stock activity rests on momentum and sentiment, with consensus projections and even guidance offering a flimsy valuation backbone,” Harrigan said, noting that the stock trades at 27 times his sales estimate for the January 2022 fiscal year and around 76 times projected profits. While the analyst did not establish a formal price objective for the stock, he calculated a fair value of $249 based on fiscal 2022 expectations, which is around $100 less than the current stock price, using a discounted cash flow model. Zoom is more valuable than other cloud-based communications companies, according to the analyst, and the group as a whole is more valuable than other high-growth software equities. He pointed out that the average unified communications firm is valued at roughly 20 times fiscal 2022 sales. Despite the valuation gap, Harrigan stated that sales growth predictions for Zoom through 2024 average 23 percent, which is in line with the group’s 22.5 percent rate. Zoom’s valuation as a multiple of revenue is higher than both, according to his note.
Twilio
(TWLO) and (TWLO)
RingCentral
(RNG), both of which are expected to expand faster than Zoom on an annually basis until 2023. Zoom’s stock dropped 1.1 percent to $356.81 on Thursday. Eric J. Savitz can be reached at eric.savitz@barrons.com./n
Read More
