But even after life returns to normal, I believe Zoom will still be a mainstay for most companies. Zoom has undoubtedly been one of the benefactors of shelter-in-place measures enacted by governments around the world to combat COVID-19. The company just grew by a staggering 355% in the last quarter and in its recent Zoomtopia customer and investor day event, the company let slip that usage is up since then. But let’s not forget that Zoom has immense business momentum in its favour. By most accounts that seems like a high multiple to pay.
#Zoom video communications software company free
Given this, and using Zoom’s annual revenue run rate, Zoom currently trades at a normalised price-to-annual free cash flow run rate multiple of 110. Boosted by record collections during the quarter, Zoom’s cash flow margin is best-in-class for software companies.Įven after accounting for any one-off jump in collections for the quarter, I think Zoom can settle at a free cash flow margin of close to 40% at its steady state. In that quarter, it had a free cash flow margin of 56%.
Unlike many high-growth software companies, Zoom boasts not just GAAP profitability, but also a high free cash flow margin. Zoom exited the quarter ended 31 July 2020 with an annual revenue run rate of US$2.6 billion. In fact, I think that even after the recent run-up in its share price, Zoom can still provide significant value for long-term investors. I used to be one of the sceptics when it came to Zoom’s valuation but I am now firmly in the opposite camp.
Today, Zoom’s shares trade at around US$404. We bought our first tranche of shares at US$254, which was then close to an all-time high and have added more since. After seeing the quick pace of adoption, my blogging partner, Ser Jing, and I decided that Zoom was worthy of a place in our investment fund’s portfolio. Since my article, Zoom has more than quintupled in value. Even my non-techy parents use “Zoom” as a synonym for video conferencing. Zoom has become more than just a company, it has become a verb. Zoom went on to blow past consensus expectations in the two quarters after that, as I had described earlier, far exceeding what some of the biggest bulls had expected. Looking back, I was way too conservative in my growth projections. It had just doubled in value and I was concerned that investors were getting too optimistic. The company, then, had a market cap of around US$38 billion. In March this year, I preached conservatism when it came to Zoom. The question now for investors is whether Zoom is overvalued. Zoom was born just nine years ago in 2011 while DBS took 52 years to get to where it is today.
To put that in perspective, the Singapore stock market’s largest company by market capitalisation, DBS Group Holdings Ltd (SGX: D05), is only valued at S$61 billion. As of the time of writing, the company was valued at US$114.8 billion. Unsurprisingly, investors have reacted sharply to the news, sending Zoom’s stock price up 460% since the turn of the year. In the very next quarter ended 31 July 2020, Zoom again blew past expectations, reporting a 355% increase in revenue. In the quarter ended 30 April 2020, Zoom’s revenue increased by a mind-boggling 169% from the corresponding period a year ago. The video conferencing software provider has been one of the main benefactors of the COVID-19 pandemic. All Rights Reserved.Zoom Video Communications Inc (NASDAQ: ZM) has been on a roll this year. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2019 and/or its affiliates. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. Factset: FactSet Research Systems Inc.2019. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes.
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