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Will Zoom (ZM) Run Out Of Steam After COVID-19 Vaccine Arrives?

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Zoom Video Communications (ZM - Free Report) has been one of the biggest gainers of the coronavirus-induced lockdowns, shelter at home guidelines and social-distancing trend. The company has benefited from massive increase in usage of cloud-based video conferencing tools in 2020.

While the FDA approved Pfizer/BioNTech’s vaccine and a second one from Moderna for emergency use authorization, it could take at least a year or two for the global population to get vaccinated considering manufacturing and distribution challenges.

Although these vaccines mark the beginning of the end of COVID, accelerated digitalization has transformed workspace beyond imagination. Innovation in work communications involving video conferencing, file synchronization, file sharing, e-signature portals, unified communications, encryption and security is expected to facilitate the work-from-home trend in 2021. This bodes well for Zoom shares which has surged 496.7% year to date.

Year-to-Date Performance

User Growth, Portfolio Expansion to Aid Zoom in 2021

Zoom is benefiting an expanding enterprise customer base backed by its cloud-native unified communications platform. Its solutions combines video, audio, phone, screen sharing and chat functionalities as well as makes remote-working and collaboration easy.

Markedly, Zoom is one of the leading names in the unified communications and collaboration (UC&C) space, which is expected to witness a healthy CAGR of 27.8% during 2020-2025, per Mordor Intelligence report.

Moreover, per a report from Grand View Research, the video conferencing market is expected to reach $8.56 billion by 2027 at a CAGR of 9.9% between 2020 and 2027.

The company’s efforts to eliminate the security and privacy loopholes like zoombombing is expected to have helped it maintain the existing enterprise user base and attract new customers. Notably, Zoom hired former Facebook security executive Alex Stamos as an outside consultant to bring its services on par with its competitors and began offering end-to-end encryption in October.

Moreover, the launch of Zoom From Home solutions is expected to help the company maintain its existing enterprise user base and attract more customers. As of Oct 31, 2020, Zoom Video had roughly 3433,700 customers (with more than 10 employees), which soared 485% year over year.

Additionally, the company had 1289 customers (with more than $100,000 in trailing 12-month revenues), up 136% year over year. The company’s growing enterprise customer list includes ExxonMobil and Activision Blizzard.

Meanwhile, Zoom is leaving no stone unturned to enhance video conferencing experience as evident from the development of hardware-as-a-service model. This will enable users to access Zoom-branded equipments like video cameras, conferencing telephones and large-screen monitors.

Apart from remote workers and online educators, Zoom Video solutions are rapidly being adopted by telehealth providers. Remote diagnosis is helping them adhere to social-distancing norms without compromising patient healthcare.

Expanding upon new potential revenues streams, the company launched Zoom Rooms and Zoom Phone last year. In October, Zoom rolled out products like OnZoom, a video events platform that enables people to sell tickets, and Zoom Apps — which lets people navigate to other workplace apps like Dropbox and Slack within Zoom.

Growth Trajectory to Mellow Down As Competition Intensifies

All of these breakthroughs are being hailed as key catalysts for Zoom to continue on its growth trajectory in 2021. However, the company’s current momentum will likely be difficult to sustain in 2021 as a sizeable chunk of employees are expected to return to office, per this report from real estate firm JLL, cited by CNBC. Markedly, three in four workers want to join office when the coronavirus-led health risks subside. In fact, a hybrid model that includes a couple of days of work from home is likely to be popular among employees.

The company is facing stiff competition from Cisco’s (CSCO) Webex as well as bundled productivity solutions with video functionality from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) -owned Google G Suite.

Markedly, integration of Teams with Microsoft’s various in-house offerings including PowerPoint presentations, SharePoint, Stream and Dynamics 365 makes collaboration easy and engaging, while driving outcomes and saving time. The tech giant, currently carrying a Zacks Rank #2 (Buy), stated that Teams has a daily active user base of 115 million in its first-quarter fiscal 2021 earnings conference. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Both Microsoft Teams and Cisco’s Webex have added noise cancellation software and started offering live transcription in video calls. Microsoft introduced Together Mode, which places conference attendees against a shared digital background to give them the feeling of being in the same room.

Moreover, to accommodate its governmental customers, Webex even added a new feature that allows legislators to emulate voting on laws. The Zacks Rank #3 company is also well poised to enhance Webex Assistant service with AI-based voice recognition and transcription capabilities from the Voicea acquisition.

Bullish Outlook

Nonetheless, Zoom still has plenty of enterprise users and its growing popularity among small businesses is expected to be a key differentiator in 2021.

In October, the company unveiled its new end-to-end encryption (E2EE) to global users, both free and paid, that ensures encrypted communication between up to 200 participants. With E2EE, no third party, including Zoom Video, is provided access to the meeting’s private keys.

Moreover, Amazon’s (AMZN - Free Report) cloud arm AWS expanded its partnership with Zoom on Nov 30. Per the deal, Zoom will continue to leverage AWS’ global infrastructure and other machine learning, analytics, compute, storage, content distribution as well as security services to create a secure extension of its data centers.

In addition, AWS and Zoom will develop new solutions for the latter’s enterprise users to help organizations run hybrid office and remote work models. In this regard, Zoom will integrate the video meeting service into select Amazon Echo Show devices. Also, it plans to incorporate Alexa for Business features into the Zoom Rooms service.

Markedly, while the Zacks Consensus Estimate for Zoom’s fiscal 2021 earnings has moved up 14.5% to $2.85 per share, the same for fiscal 2022 earnings jumped 17.55% to $2.82 per share in the past 30 days.

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