As the digital economy starts to go online across businesses and the world, investors have to be aware of the companies and services that will be at the forefront of this revolution. Apart from operations and backend systems, other everyday needs will need to be met through the use of technology, and this is where video conferencing and communications software come into play.
However, they aren't all made equal, which is why Microsoft (NASDAQ:MSFT) decided to discontinue
Skype, its former service in the video conferencing area. Some investors might have blamed this on President Trump's desire to get remote workers back in the office, yet there is a clear indication that other companies are potentially taking on the market share left behind by Skype.
Not only taking over but expanding on it as some of the main leaders of today's digital and globalized economy. Platforms like Google Meets, hosted by Alphabet (NASDAQ:GOOGL) and Zoom Video Communications (NASDAQ:ZM), have landed themselves inside the heart of the United States corporate meeting environment, and that seems to be the opening investors need in order to stick with them despite the recent Skype news.
Two Sides to The Video Coin
For social video calling and conferencing, there are apps that cover the needs successfully every day, such as FaceTime or WhatsApp video. These will never go away, as families and friends connect over video on a daily basis, but going into a professional setting is where everything changes.
From interviews to team meetings and even closing on sales and potential leads or clients, FaceTime or WhatsApp videos just aren’t up to the professional standard necessary to complete these tasks. That’s the so-called “Qualitative” aspect of studying these services.
Now, the quantitative areas need to be covered, and here’s why Zoom and Google Meets will continue to dominate.
- They allow for customization based on the meeting’s setting, such as background, screen-sharing, and other built-in tools that Skype didn’t develop.
- Through integrating productivity tools like chat systems, calendars, and document sharing, Zoom and Google Meets bring the closest experience to an in-person meeting to investor screens.
- These platforms focus on the needs of businesses, not consumers. They have taken over the market and will likely remain the leaders moving forward.
Zoom Stock’s Upside Potential: Double-Digits
As shares of Zoom now trade at 80% of their 52-week high level, there is still plenty of room for them to rise under the right circumstances and setups. One of them is the fact that Zoom is a subscription-based business, the type that investors will look for if the technology sector’s volatility remains elevated.
Making the financials more stable and predictable is the foundation to get Wall Street analysts comfortable with boosting a stock and remaining bullish on it. This is the reason why those from Benchmark decided to reiterate their Buy rating as of February 2025, this time also placing a $97 per share valuation.
This view would call for Zoom stock's new 52-week high and a net implied rally of 30.5% from its current price. More than that, some new buyers have examined the company’s key performance indicators (KPIs) and decided that the stock is a Buy today.
Starting with customer metrics, Zoom's latest quarterly results show investors how It has grown to 192,600 enterprise customers today, driving the potential monetization and expansion of the company’s valuation toward the one called for by Benchmark analysts.
Predictable and stable subscription revenue translated to a net free cash flow (operating cash flow minus capital expenditures) of up to $416 million for the past quarter, translating into a 25% increase from the $333 million generated for the same quarter in the previous year.
With such a strong financial report, AQR Capital Management decided to boost their holdings in Zoom stock by as much as 5.2% as of February 2025, bringing their net position up to $612.2 million today, or 2.4% ownership in the company today.
For those looking for a way to cushion some of the recent S&P 500 volatility while also keeping upside potential in their portfolios, they can look to the current price-to-earnings (P/E) valuation of 24.8x for Zoom stock today, which stands well below the computer sector’s average P/E valuation of 44.4x today.
Simply put, Skype’s closure only shows investors what models work and which don’t, and Zoom is a survivor churning out better KPIs for a reason. It also offers a fantastic risk-to-reward ratio today.