Berstein says Zoom stock is at a much more appealing price point.
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Zoom Video Communications stock has tumbled about 35% since mid-October, as investors have questioned how much the company’s growth rate will compress once the economy reopens and at least some workers return to offices. But has the selloff gone too far?
Bernstein analyst Zane Chrane thinks so. On Friday, he reiterated his Outperform rating and $610 target price on Zoom (ticker: ZM), which he considers his “highest-conviction pick for 2021.”
This week, he notes, the company announced that Zoom Phone—a cloud-based telephone service—had reached 1 million seats sold, about two years after the service launched. Chrane says that news has increased his confidence in the bull case for Zoom shares.
Chrane says Zoom Phone will become a material contributor to the company’s revenue sooner than investors generally expect. Zoom Phone could hit 8 million or more paid users by the end of calendar 2022, and 13 million by the end of 2023, he says. Unlike Zoom’s core video service, there are no free versions of Zoom Phone. The analyst predicts that the service could produce $4 billion in annualized revenue by the end of 2023—if you put a valuation of 20 times sales on the business, it would be worth $80 billion at 2023 year-end.
Discounting that back, Chrane finds that the market is valuing the core video business for just $46 billion, “a significant undervaluation.” He expects the core videoconferencing business to have “durably strong growth in 2021 and beyond,” given sustained elevation in monthly active users, acceleration of remote hiring generally, and high Zoom downloads from app stores.
And with the recent price reversal, “the stock has now reached a more palatable price point for more investors,” he adds.
On Friday, Zoom shares are up 0.7% to $385.83.
Write to Eric J. Savitz at [email protected]
