Zoom Communications recently reported its fourth quarter fiscal 2025 results (with the fiscal year ending in January), recording adjusted earnings of $1.41 per share on revenues of $1.18 billion. This performance surpassed analysts’ expectations of $1.35 per share while meeting revenue forecasts. Zoom’s revenue grew by 3.3% year-over-year, driven by a 5.9% rise in enterprise revenue to $707 million, even as online sales declined slightly by 0.4% to $477 million.
Although Zoom experienced substantial user growth during the pandemic lockdowns, concerns have arisen about the long-term sustainability of video conferencing demand as organizations shift away from hybrid work models. This trend is reflected in a 13% year-over-year reduction in enterprise customers, which fell to 192,600 during the quarter. If you prefer an investment with less volatility than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P and delivered over 91% returns since inception.
The company achieved an improvement in operating margin of 80 basis points year-over-year, reaching 39.5% in Q4. Despite higher revenues and modest margin expansion, earnings per share dropped by one cent from the previous quarter to $1.41, partly due to a 1% increase in total outstanding shares.
For the next quarter, Zoom projects sales of $1.16 billion and earnings of approximately $1.30 per share, which are slightly below market expectations of $1.17 billion and $1.31, respectively.
Is Zoom Stock Fairly Valued at $75?
ZM stock fell by 8% following its earnings announcement. Notably, ZM stock has underperformed the broader market in each of the past four years, with returns of -45% in 2021, -63% in 2022, 6% in 2023, and 13% in 2024.
Conversely, the Trefis High Quality Portfolio, which comprises 30 stocks, exhibits considerably lower volatility. It has comfortably outperformed the S&P 500 over the past four years. Why is that? As a group, the stocks in the HQ Portfolio have provided better returns with less risk compared to the benchmark index; offering a smoother ride, as demonstrated by the HQ Portfolio performance metrics.
Considering the present uncertain macroeconomic conditions regarding rate cuts and ongoing trade wars, could ZM experience a situation similar to the past four years and underperform the S&P in the next 12 months — or might it recover? From a valuation standpoint, we believe there is room for growth.
With a current price of $75, ZM stock is valued at 5.1x trailing revenues, trading below its four-year average price-to-sales ratio of 7.2x. While a lower valuation multiple relative to historical averages is understandable given the company’s decelerating revenue growth and declining enterprise customer base, we believe the gap is significant and suggests potential for share price appreciation.
Although ZM stock appears to have growth potential, it is useful to examine how Zoom Communications’ Peers perform on key metrics. Additional valuable comparisons for companies across industries can be found at Peer Comparisons.
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