Zoom Video Communications: Is the Stock Overvalued?

Zoom’s Explosive Surge: 2020’s Digital Boom

When the world shut its doors and switched to video calls, Zoom Video Communications didn’t just survive — it thrived. It’s been a turbo‑charged champion for a million people stuck at home.

Quarter‑over‑Quarter Boom

• April 30, 2020 – Revenue jumped a staggering 169 % from the same period last year.
• July 31, 2020 – The next quarter saw an even wild 355 % rise.

These figures blew the expectations out of the water and sent shareholder smiles wide as the Zoom welcome screen.

A Stock Market Roller‑Coaster

• Since the start of the year, the share price has leapt 460 %.
• Current market cap sits at a mind‑blowing US$114.8 billion (S$150 billion).

Zoom vs. The Titans

To put it plainly: DBS Group Holdings—the biggest name in Singapore’s market by cap—stands at about $61 billion. Zoom was a baby in 2011; DBS had been taking its 52‑year journey.

Is the Zoom Frenzy Just a Bubble?

Investors are now staring at the numbers and asking the tough question: Is Zoom over‑valued? The stock’s meteoric rise, jump‑starting from a global pandemic, has certainly stirred the pot. While the platform continues to gain new users and expand its feature set, the market must weigh whether these numbers reflect sustainable growth or a temporary blowout.

Only time, and a little more COVID‑curve, will tell if the Zoom boom remains a lasting headline or merely a splash in the digital sea.

Growth skeptic

Zoom: From Skepticism to Surge

Back in March, I was wearing my safest hat—think conservative version of a financial detective—when it came to Zoom. At that time, the company was sailing at a market cap of roughly US$38 billion, having just doubled its value in the previous year.

The Big Bold Mistake

I worried that investors had gone overboard. In hindsight, I was totally too cautious about the growth trajectory. The next two quarters turned into a record‑breaking rollercoaster, exceeding every expectation—including the most optimistic bulls.

Zoom Becomes a Verb

• Even my tech‑illiterate parents now use “zoom” for any video meeting.
• It’s no longer just a company; it’s a linguistic staple.

From Blog Post to Portfolio Pick

Since my retrospective article, Zoom’s valuation has sprinted past five times its earlier level. Watching the adoption speed, my blogging partner Ser Jing and I realized it was a prime candidate for our fund.

• First tranche purchased at US$254—near an all‑time high.
• Continued additions as the stock climbed.
• Today, Zoom trades around US$404.

What a turn of events! From cautious critique to bold investment, Zoom’s journey reminds us that sometimes, the best story is a rollercoaster you almost missed.

Believing

Zoom: From Skeptic to Advocate

I used to doubt Zoom’s valuation, but now I’m firmly in the opposite camp. Even after its recent share price spike, I believe Zoom still offers substantial long‑term upside.

Financial Snapshot (Q2 2020)

• Annual Revenue Run Rate: $2.6 billion
• Free Cash Flow Margin: 56% (adjusted down to ~40% in steady state)
• Cash Flow Position: Best in class for software firms, thanks to record collections

While that 56% is partially due to a one‑off collections boom, Zoom’s core business model supports a solid ~40% free cash flow margin once everything stabilizes.

Valuation & Multiples

With its current revenue run rate, Zoom trades at a normalized price‑to‑annual free cash flow run rate multiple of 110. On its face, that looks sky‑high.

But Momentum Says Otherwise

• Grew 355% in the last quarter—talk about a growth sprint!
• Zoomtopia’s latest investor day confirmed that usage is on the rise.

If you’re looking for a table‑top of solid coupon cash and impressive growth horizon, Zoom may just be the ticket. Even if the multiple feels steep, the company’s trajectory warrants a second look.

Can Zoom continue to grow?

Zoom: The New Normal in a Post‑Pandemic World

Remember the days when the word “Zoom” suddenly became a household term? It’s the tiny green button that now sits in most office desks and living rooms alike. Governments worldwide slapped on stay‑at‑home rules to slow Covid‑19, and Zoom was there to keep us connected. But here’s the kicker: Even as we’re finally trading masks for normal fashion, Zoom is still sticking around like a trusty sidekick.

Why Video Calls Won’t Be a Flash‑In‑the‑Pan

• Companies are talking about making hybrid or full‑remote work the new standard.
• Employees are getting the freedom to work from the couch or a coffee shop, and Zoom is the bridge that keeps the teamwork flowing.
• Even though the pandemic has slowed records, the trend is solid: video conferencing will keep swelling in both business and personal arenas.

In short, Zoom’s growth might take a mild dip once “normal” returns, but that’s hardly a death knell. The platform’s share of the market won’t hit its peak until we fully lean into digital collaboration.

The Big Numbers Behind Zoom

Zoom’s last IPO prospectus dropped the needle as a $42 billion communications market—a figure that  nice and big but still leaving a lot of room under the radar.

• That “$42 billion” market mainly counts standard sales of Zoom as a video platform.
• However, the pandemic has proven that video chat can juggle teaching, tele‑medicine, virtual workouts, and so many more tasks.

With this momentum, let’s crunch the numbers:

That gives Zoom a valuation of 28× its projected free cash flow in 2025—aww, a pretty tidy multiple. The kicker? The company’s growth horizon isn’t capped.

Zoom’s Not Just About Luring People With The Green Button

CEO Eric Yuan and his squad are constantly sprouting fresh tech. The latest stars in the gallery are:

• Zoom Phone – a new twist on VoIP that lets you place calls without leaving your favorite app.
• Zoom Hardware – to make the experience smoother, from webcams to microphones.

These innovations broaden Zoom’s reach and embed it further into daily workflows. When folks love Zoom’s new tools, they’ll keep using them—just like they do for the office, the library, the workout, and the family movie night.

The Bottom Line

Pricey? Maybe a bit. But remember, Zoom isn’t just a video‑conferencing app—it’s a growing platform that connects charges, classrooms, clinics, and family call‑outs. As long as people keep swapping in-person meetings for a quick “screen share,” Zoom will keep delivering. And with fresh products, the company is set to keep gaining ground—ergo, the future’s looking bright, with a touch of “green tech” glow.

Final words

Zoom: Overpriced or Undiscovered Treasure?

At first glance, Zoom’s price tag looks like it’s been slapped on from a vault of gold. In a 12‑month glance the numbers scream “over‑valued.” But the thing is, the next year for a fast‑moving startup like Zoom is going to feel like a brand new episode of a sitcom—plot twists, fresh characters, and whole new challenges.

What’s on the Horizon for 2025 and Beyond

Zoom is not just stuck in the past; the future is shaping up to be a playground of potential.

• Huge Frontier – The online‑meeting market is a sprawling $42 billion playground. Zoom is already sales‑pitching to snag a sizable slice.
• Competitive Curry – The buffet is full of rivals, but Zoom’s recipe keeps customers coming back.
• Customer Love Meter – Net Promoter Score? 62. That’s the sweet spot, higher than most e‑conferencing peers.
• Brand Power – “Zoom” as a verb has entered the vernacular. Think “Google” but for meetings.

Why It Might Still Be a Bright Spot

Despite the risks of losing focus or a competitor stealing a key feature, the market’s gigantic jaws can accommodate a bunch of winners. The key question: can Zoom keep the fun (and the quality) alive?

Pros vs. Cons

• Pros: Constant product polish, massive brand presence, a strong NPS score that makes customers shout “Yes!”
• Cons: Swamp of alternatives that just click a few taps away, need to keep the customer obsession 100 %.

Bottom line? Coupled with the momentum that Zoom has to wield, the odds of it crushing the competition look brighter than a Monday morning sunrise, minus caffeine.

Want More Detail? Take a Peek at Our Investment Thesis

For the curious, the full play‑book – where Jeremy, apart from owning some shares, has worked hard with Sl Sherlock to build a solid investment thesis – is available (without any external links).

Reefing in the REIT World: A Side Note

While Zoom’s story is gripping, investors are also eyeing REITs that can generate cashflow as Singapore’s economy sails back to shore.

This article was first penned in The Smart Investor. Jeremy Chia holds shares in Zoom Video.