Zoom stock overvalued amid concerns over sustainable growth, analysts say

Zoom stock
Updated: 10 Jan, 2021
2 mins read

Zoom stock price (NASDAQ: ZM) rallied almost 600% so far this year, but investors and analysts have now started arguing that whether Zoom stock worth significantly high valuations. It’s true that the video communication company benefitted from the current market environment. However, its ability to sustain that growth in the long term is a big question mark for bulls.

Zoom stock price is currently trading around $470, down slightly from an all-time high of $530. Its shares are up almost 55% since it announced second-quarter results at the beginning of last month.

ZM Zoom Video Communications, Inc. daily Stock Chart
Zoom stock price performance. Finviz chart

The stock price of the video communication company also received strong backing from the analyst’s commentary. CFRA upgraded the stock price target from $245 to 460.

“While we still believe the current valuation is ludicrously high, our upgrade to Hold reflects our view that the stock’s current momentum is simply too strong. We project revenue growth of 284% in FY 21, but see a rapid deceleration to 26% growth in FY 22,” CFRA analyst Keith Snyder said.

BofA has appreciated its robust financial performance and raised the price target to $475. Unlike CFRA, BofA analyst Nikolay Beliov claims that the revenue growth trends are sustainable in the long–term as the pandemic has changed the people’s habits. The firm anticipates Zoom’s fiscal 2022 revenue in the range of $3.1 billion.

Zoom has generated second-quarter revenue around $663 million, representing a growth of 355% from the past year period.

“Our ability to keep people around the world connected, coupled with our strong execution, led to revenue growth of 355% year-over-year in Q2 and enabled us to increase our revenue outlook to approximately $2.37 billion to $2.39 billion for FY21, or 281% to 284% increase year-over-year,” Zoom founder and CEO, Eric S. Yuan said.

It has also been turning revenue growth into big profits. Its second-quarter earnings per share of $0.92 jumped by $0.47 per share from analysts’ consensus estimate.  

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Justinas Baltrusaitis

Justin crafts insightful data-driven stories on finance, banking, and digital assets. His reports were cited by many influential outlets globally like Forbes, Financial Times, CNBC, Bloomberg, Business Insider, Nasdaq.com, Investing.com, Reuters, among others.