A lot has changed for Zoom Video Communications (NASDAQ: ZM) since its explosive pandemic-era growth. Even as remote work and video conferencing remain critical for businesses globally, disappointing trends from the cloud-based collaboration platform have been a disaster for the stock. Shares of Zoom are down 90% from their peak in 2020.
That being said, resetting expectations can sometimes represent a fresh start for an investment opportunity that still benefits from solid fundamentals . Can Zoom make a good addition to your portfolio now?
Let's consider two reasons to buy the stock and one to sell.
Zoom is a cash-flow machine
Fiscal 2021 (ended Jan. 31, 2021) was the breakout year for Zoom Video as it covered a period when the world was scrambling to adjust to a work-from-home reality. The platform's ease of use quickly made Zoom a household name, driving 326% sales growth that year.
Zoom's most recently reported fiscal 2025 first quarter (ended April 30) showed revenue up an unimpressive 3.2% year over year. The challenge for Zoom has been to deliver a new round of growth momentum.
More encouraging has been the company's ability to leverage its ecosystem into recurring profitability. Q1 non-GAAP (adjusted) earnings per share (EPS) of $1.35 climbed 16% year over year. Free cash flow of $570 million was up an even stronger 44%, a record for Zoom.
The operating metric that stands out to start the year is Zoom's 191,000 enterprise customers, including 3,833 accounts generating more than $100,000 in revenue over the trailing 12 months, up about 9% from the year-ago period.
This cohort is important as it indicates the brand remains relevant. For context, Zoom only counted 1,999 of these large customers three years ago.
Despite the poor stock price performance, the takeaway is that Zoom is very profitable with steady growth, which is a good starting point when thinking about buying any stock.
Data by YCharts .
A dirt cheap valuation
Beyond video meetings, Zoom's strategy is to build a broader unified communications hub. Efforts to integrate artificial intelligence (AI) tools and expand business services can support customer engagement and add to the value proposition of the Zoom Workplace platform.
For fiscal 2025, Zoom expects modest revenue growth of around 2%. The company is also targeting fiscal 2025 EPS between $4.99 and $5.02, a decline from the $5.21 it reported last year, due to ongoing investments in AI capabilities. The outlook for full-year free cash flow of around $1.46 billion, if confirmed, is approximately flat from $1.47 billion in fiscal 2024.
So while this near-term financial trajectory is muted, what the figures do highlight is a very compelling valuation.
With a current market capitalization of $18.5 billion, shares of Zoom are trading at just 12 times management's 2025 EPS target and 11 times its free cash flow. These multiples are even more attractive when considering that Zoom ended the quarter with $7.4 billion of cash and marketable securities on its balance sheet.
For investors in search of a bargain in the software-as-a-service stock universe, shares of Zoom offer good value and could be a buy now.
Intense competition adds uncertainty
What does warrant some pause is the uncertainty surrounding Zoom's competitive landscape. Several high-profile technology leaders are targeting the same opportunities with alternative workplace productivity and communications platforms.
A concerning trend from Zoom has been its struggle to gain traction outside its core Americas region. First-quarter revenue declined in the strategically important Asia-Pacific market. Weaker-than-expected trends internationally could force a reassessment of the company's long-term earnings potential.
Investors who believe Zoom will struggle to consolidate market share against platforms like Teams from Microsoft , Webex by Cisco Systems , or even Meet Workspace by Alphabet have a reason to avoid the stock for now.
Overall, I'm cautiously bullish on Zoom stock under the belief that its strong points outweigh the risks. The potential for the company to outperform expectations could be a catalyst for its beaten down stock.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Cisco Systems, Microsoft, and Zoom Video Communications. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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