We had another heated stock debate between Borwen and Chloe (the CB team) this week. During the debate, we zoomed in closely on Zoom (ticker: ZM) to analyze if it's indeed a great company to invest in, considering that the stock has fallen close to 90% from its peak.
At Buffett Online School, we believe in investing in great companies that you understand, and utilising Free Investing Resources to kickstart your investment journey is one of the best ways to learn. Here is a summary of the debate.
Borwen's Key Argument - Why You Should Buy Zoom Stock
Zoom Video Communications (ticker symbol: ZM) experienced a significant increase in stock price during the COVID-19 pandemic, reaching close to $560. However, the current stock price is around $67, similar to its IPO price of $65 in 2019. The CEO, Mr. Eric Yuan, has a strong engineering background and a customer-focused approach.
Zoom started as a small platform but grew rapidly, attracting numerous customers and becoming profitable even before the pandemic. The enterprise user base is a significant revenue source for Zoom. They aim to provide unified communication as a service, linking various communication needs for companies.
Despite a slowdown in growth and market share, Zoom still holds a significant portion of the market and offers a disruptive pricing strategy compared to competitors. The company places a strong emphasis on service, continually improving its product and adapting to customer needs.
Financially, Zoom shows increasing cash flow, profitability, and customer expansion. They introduced Zoom Phone, expected to contribute to revenue growth. The churn rate has improved, indicating higher profitability.
While there are risks to consider, such as flattening revenue growth and potential effects of a stronger US dollar, Zoom remains focused on maintaining its growth trajectory. Overall, Zoom Video Communications has positioned itself as an iconic company, particularly during the COVID-19 pandemic, with strong potential for the future.
Zoom is also venturing into AI technology, which will enhance its transcription, summarization, and translation capabilities. This development has the potential to revolutionize communication processes, offering greater efficiency and accessibility. By leveraging AI, Zoom aims to streamline operations and cater to global markets effectively. While assessing the company's valuation as undervalued or overvalued depends on individual analysis, Zoom's financial stability and growth potential make it an intriguing investment opportunity.
Chloe's Key Argument - Why You Shouldn't Buy Zoom Stock
Renowned investors Charlie Munger and Warren Buffett have achieved great success by embracing an inverse thinking approach. In light of this, a counter argument is being presented against investing in Zoom stock. It is worth noting that the market is filled with numerous competitors, including major players like Google and Microsoft Teams. The growth rate of Zoom has noticeably slowed, and it is anticipated to continue on a downward trajectory.
Zoom's stock valuation is a matter of concern, as it currently stands at an exceptionally high P/E ratio of 3,381 times. Furthermore, worries have been expressed regarding Zoom's operating profit, net income, and free cash flow.
The industry itself is undergoing rapid changes, with formidable contenders like Google and Microsoft posing significant competition to Zoom.
Additionally, the insider selling by Zoom's Chief Financial Officer raises doubts about the confidence in the company.
In light of these factors, it is paramount to consider long-term prospects and maintain a balanced view when contemplating investments. Thorough analysis of Zoom's future growth potential and sustainability is crucial.
If you want to watch the full arguments presented by both Borwen and Chloe, here's the video!
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