Zoom (NASDAQ: ZM), a key beneficiary of the work from home orders during the pandemic, had an outstanding 2020, with the stock gaining over 400% in the past 12 months. However, during the past three months, the stock suffered a decline of roughly 40% from the highs it attained in mid-October, which gives the impression that the stock might have lost steam. Will the stock regain momentum and reach new highs in 2021 as well? In this article, we will discuss risks surrounding the stock and forecast the possible direction of the stock given the evolving situation related to the pandemic.
1- Customer turnover
With the workplaces slowly returning to normal, customer turnover is the key risk Zoom will have to face. Among the major users of teleconferencing were schools and universities that had shifted to distant learning mode during the stay-at-home orders in the pandemic. The number of active users might decline as the pandemic situation improves, making it challenging for Zoom to retain the small and big corporate customers as well as converting the free users into paid subscribers.
Zoom faces stiff competition from its rivals such as Microsoft’s Teams and Google’s Meet who are continuously rolling out new features to counter the growing dominance of Zoom in the videoconferencing market. Last year Google announced free access to Google Meet for anyone with a Google account, with unlimited online meeting support for 100 people. Google has successfully integrated Google Meet with Gmail, allowing users to connect to Google Meet directly from their Gmail accounts. Microsoft Teams last year rolled out a feature that lets users see 9 participants on screen simultaneously. Google Meet and Microsoft Teams, both, have experienced a surge in their users. However, Zoom is also keeping ahead of the competition as it has some distinguishing features like end-to-end encryption for its paid and free users that none of the rivals have.
The company announced a stock offering worth $1.5 billion on January 12, whereas as per its Q3 report, the company has roughly $2 billion in cash, which is enough to undertake new projects and enhance its technology. While the demand for videoconferencing will certainly reduce gradually with the improvement in the Covid-19 situation, Zoom can make efforts to retain its corporate clients that often are the frequent users of videoconferencing technology. Zoom is already ahead of its competition with its strong and distinguishing features, which it can use to its advantage in the years ahead.
Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.