Is Zoom (ZM -2.51%) a good investment and can it continue to grow? In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on May 25, Motley Fool contributor Brian Withers discusses Zoom's financials, and explains why it could make for a stable stock over the long-term.
Brian Withers: Over the course of the Coronavirus, Zoom went from being really a niche, fast-growing service to a mass-market tool for businesses and individuals around the world. Growth rates in 2019 before the coronavirus were actually between 80% and like 100% and the company was barely profitable. Since the beginning of the pandemic, revenue up 5x, net income up 10x. This isn't a massive gross stock than it once was with revenue growth projected to be at 11% but it's still a good investment. Let's look at a couple of the metrics that I liked from the quarter. Top-line grew 12%. It's helpful to put it in perspective. Last Q1, the growth rate was 194%. This is the textbook definition of a tough comp and they grew 12% Expansion rate for enterprise customers is 123%, love that. RPO, remaining performance obligations, which basically is the contract value out in front of the company, grew 44%. That says that customers are starting to sign larger and longer contracts. Cash from operations, $526 million, love that. Forty-nine percent cash flow margin, totally unheard of. Cash increased a billion dollars from last quarter, last Q1 to this Q1. You know what? Still no debt, no debt on the balance sheet. Large customers over 100k grew 46%. This is a cash machine that will continue to grow long into the future, but at a slower rate. I like this as a long-term, stable tech stock in my portfolio.
Toby Bordelon: Alright, Brian. As you wrap up here, where do you see Zoom going, going forward, if the growth is slowing? Are they going to become a big consumer brand or do they seem to stay a consumer brand, or do they lean more into that enterprise side perhaps?
Withers: Yeah. When you look through their earnings presentation, it's all about focus on the enterprise business. It's 52% of their overall revenue right now, and it's growing faster than their overall business. They're looking to double down on tools for sales forces, for call centers, and really just enterprise businesses across the board. I see that as a very sticky and stable platform that will drive subscription revenue growth for the long-term.
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June 05, 2022 at 10:39PM
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This Company Is a Cash Machine, and It's a Long-Term, Stable Tech Stock - The Motley Fool
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