Analyst on Zoom (ZM): ‘This Is Not a Growth Story’

We recently published 10 Trending Stocks to Watch As AI Bubble Warnings Heat Up. Zoom Communications Inc (NASDAQ:ZM) is one of the trending stocks.

Joseph Terranova, Senior Managing Director, Virtus Investment Partners, said in a latest program on CNBC that ZM is no longer a growth story. Here is why the analyst is bearish on the stock:

“Not smiling over it either because it really hasn’t worked out particularly well. The reasons behind the entry were a very strong rally in 2024 and it reached its peak point at that point and it really hasn’t accelerated since then. It’s been moving sideways to lower. This is not a growth story. You think about what growth was, growth was and Zoom Communications Inc (NASDAQ:ZM) years ago. You could make that strong robust growth argument. You can’t make that anymore. You’re talking about low singledigit revenue growth for this company.”

Guinness Global Innovators stated the following regarding Zoom Communications Inc. (NASDAQ:ZM) in its Q4 2024 investor letter:

Zoom Communications Inc. (NASDAQ:ZM) has struggled since coming out of the pandemic with changing consumer trends and a tougher macroeconomic environment. At purchase, Zoom looked attractive from a valuation perspective, having derated from its 2021 highs to near pre-pandemic levels – despite being a fundamentally better business. The company had built a strong brand, with ‘Zoom’ becoming synonymous with online conferencing and video calling after the company’s success during the pandemic, and the resulting paradigm shift towards increased hybrid working. What was once a more ‘speculative’ growth stock at the start of the pandemic, was now a slightly more mature growth company with high market share (underpinned by a best-in-class product), stickier revenues, and a stronger balance sheet with $5bn in cash creating room for growth investment. With a superior product and strong brand presence, growth expectations for the company were around mid to high single digits. However, since purchase, Zoom has returned -34% versus the MSCI World Index, which was up 28%, with a growth profile that has disappointed. The company’s key Enterprise segment has seen decelerating growth, with both customer growth and the net dollar expansion rate (Zoom’s revenue per user metric slowing significantly). Customer growth has slowed from a rate of 25% YoY in the quarter prior to purchase to an estimated 3.6% by the first quarter of 2024. Net Dollar Expansion rate has slowed even further, currently at 101% (1Q24) vs c.123% at purchase…” (Click here to read the full text)

While we acknowledge the risk and potential of ZM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ZM and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.