In early 2020, if you wanted to keep working and continue connecting with friends and family, you likely found yourself using Zoom Video Communications’ (NASDAQ:ZM) namesake app. The product became ubiquitous because of the pandemic; the company’s revenue for fiscal 2021 (which ended Jan. 31) skyrocketed 326% year over year; and the stock trades over 300% higher than where it traded in January 2020.
On Aug. 30, Zoom released financial results for the second quarter of fiscal 2022. Since then, the narrative has focused on slowing growth, confirming for many that Zoom was just a pandemic stock and not worth owning now that there’s a vaccine. But a closer look at a $265 million item within Zoom’s billion-dollar top line completely shatters this widely held misconception.
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Zoom stock fell following the release of its Q2 results and now sits around 50% below its all-time high. Investors are counting this company out when it comes to creating future shareholder value. But considering it continues to gain new customers, I think it’s wrong to count it out. And there are more reasons to believe Zoom can still be a winner from here.
Zoom has a great track record of increased customer spending, which continued in Q2. Its net dollar expansion rate for companies with 10 or more employees was over 130% again, continuing its streak of more than four years. In other words, these customers spent roughly 30% more money this past quarter than they did a year ago.
Zoom has many ways to continue to grow spending among existing customers. Right now, it’s pulling its Zoom Phones lever — its product for updating a company’s office phone infrastructure. It’s been about a year since the product launched, and it’s already reached two million seats, up about 500,000 in Q2.
Zoom Events just launched in July, giving the company further optionality. With Zoom Events, organizers can create ticketed livestreams for events like concerts. But it has other applications as well. For example, a yoga instructor could use it to generate revenue for live classes.
All of this doesn’t even include Zoom’s pending acquisition of Five9 (NASDAQ:FIVN), which dramatically increases the company’s total addressable market (TAM). By acquiring Five9’s customer contact center market, Zoom’s TAM is now estimated at $86 billion, an increase of 39%.
Could Zoom grow its TAM again in the future? This seems likely to me considering it now has over $5 billion on the balance sheet and is generating millions in quarterly free cash flow — $455 million in Q2 alone.
Zoom is gaining new customers; old customers are spending more; and the company is loaded with a growing pile of cash. To me, this is a powerful combo that can make Zoom stock a long-term winner from here.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.