Should You Pick Zoom Stock At $75?

Zoom Communications Q4 Fiscal 2025 Results: A Mixed Bag

Zoom Communications posted its fourth-quarter fiscal 2025 results, delivering adjusted earnings of $1.41 per share on revenues of $1.18 billion. While the company surpassed consensus estimates of $1.35 per share in earnings, it met expectations on revenue. This performance, however, comes amid growing concerns about the long-term sustainability of video conferencing demand, as businesses shift away from hybrid work models.

Zoom’s revenue for the quarter grew by 3.3% year-over-year, driven by a 5.9% increase in enterprise revenue, which reached $707 million. However, online sales dipped slightly by 0.4% to $477 million, signaling a potential slowdown in consumer demand. The company also reported a 13% year-over-year decline in enterprise customers, dropping to 192,600 during the quarter. While this decline raises questions about Zoom’s ability to maintain its pandemic-era growth, the company’s strong enterprise segment continues to be a bright spot.

Despite the challenges, Zoom improved its operating margin by 80 basis points year-over-year, reaching 39.5% in Q4. However, earnings per share (EPS) fell by one cent compared to the previous quarter, largely due to a 1% increase in total outstanding shares. Looking ahead, the company projected revenues of $1.16 billion and EPS of approximately $1.30 for the next quarter, slightly below market expectations of $1.17 billion and $1.31, respectively.

Market Reaction and Valuation: Is Zoom Stock Fairly Valued at $75?

Following the earnings announcement, ZM stock fell by 8%, reflecting investor concerns about the company’s growth prospects. Over the past four years, Zoom has underperformed the broader market, with returns of -45% in 2021, -63% in 2022, 6% in 2023, and 13% in 2024. This underperformance has led some investors to question whether the stock is fairly valued at its current price of $75.

From a valuation standpoint, ZM stock currently trades at 5.1x trailing revenues, significantly below its four-year average price-to-sales ratio of 7.2x. This gap suggests potential for share price appreciation, especially given the company’s strong margins and enterprise customer base. However, the stock’s lower valuation multiple reflects broader concerns about decelerating revenue growth and a shrinking enterprise customer base. While Zoom appears to have room for growth, its ability to recover will depend on its capacity to adapt to a shifting work environment and regain market share in the competitive video conferencing space.

Zoom’s Challenges and Opportunities in a Post-Pandemic World

The shift away from hybrid work models has posed significant challenges for Zoom, which experienced rapid user growth during the pandemic. As businesses embracing fully in-office or remote work, the demand for video conferencing tools has stabilized, leading to slower growth for Zoom and its competitors. The company’s 13% year-over-year decline in enterprise customers highlights this trend, as businesses may no longer see the same level of value in expensive video conferencing platforms.

However, Zoom’s enterprise segment remains a key driver of growth, and the company’s ability to innovate and expand its product offerings could help it regain momentum. With its strong balance sheet and high margins, Zoom is well-positioned to invest in new technologies and acquire smaller competitors to strengthen its position in the market. Additionally, the company’s lower valuation compared to historical levels could make it an attractive option for investors seeking exposure to the tech sector at a discounted price.

Peer Comparisons and the Case for Diversification

While Zoom’s performance has been lackluster in recent years, it is important to consider how the company stacks up against its peers. For investors seeking broader exposure to the tech sector, a diversified portfolio may be a more attractive option. The Trefis High-Quality Portfolio, which includes 30 stocks with strong fundamentals and lower volatility, has outperformed the S&P 500 over the past four years.

This portfolio’s success can be attributed to its focus on companies with robust earnings, stable revenue growth, and lower risk profiles. By spreading investments across a range of industries, the High-Quality Portfolio offers a smoother ride for investors, reducing the impact of volatility from individual stocks like Zoom. For those considering an investment in ZM, a diversified approach may provide better risk-adjusted returns, especially in the current uncertain macroeconomic environment.

Investment Implications and the Path Forward

Given the current macroeconomic conditions, including ongoing rate cuts and trade tensions, Zoom’s ability to recover in the next 12 months remains uncertain. While the company’s lower valuation and strong margins suggest potential for growth, its declining enterprise customer base and slowing revenue growth pose significant risks.

For investors weighing their options, the Trefis High-Quality Portfolio offers a compelling alternative to individual stocks like Zoom. With its history of outperforming the S&P 500 and lower volatility, this portfolio provides a more stable path to wealth creation. However, for those willing to take on additional risk, Zoom’s discounted valuation and strong enterprise segment may present an attractive opportunity for long-term growth.

Conclusion: Balancing Risk and Reward

Zoom Communications’ Q4 results provide a mixed picture of a company navigating a post-pandemic world. While the company’s strong margins and enterprise segment offer reasons for optimism, its declining customer base and slowing revenue growth raise concerns about its long-term trajectory. At $75 per share, ZM stock appears undervalued relative to its historical averages, but its ability to recover will depend on its ability to adapt to changing market conditions.

For investors seeking exposure to the tech sector, a diversified approach through portfolios like the Trefis High-Quality Portfolio may provide a more balanced and less volatile path to returns. However, for those willing to take on the risks associated with individual stocks, Zoom’s discounted valuation and strong fundamentals may offer an attractive opportunity for growth. As the market continues to evolve, it will be important to closely monitor Zoom’s progress and the broader macroeconomic landscape.