Zoom Video Communications Fatigue & Growth Forecasts

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Zoom Video Communications Fatigue & Growth Forecasts
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During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Zoom Video Communications Inc (NASDAQ:ZM) Fatigue & Growth Forecasts. Here’s an excerpt from the episode:

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Zoom Video Communications Fatigue & Growth Forecasts

Bill: Here’s what I don’t understand on Zoom Video Communications. Okay. You’ve got huge growth this year, huge. 262%, okay, to $2 billion, we’re trading in 117 billion, so whatever. Lots of time sales for those that want to figure it out. You got them growing consensus is like 40% growth in 2024. Okay, why? 40% is a big number. What’s going to happen in 2024?

I’m looking at it, you got 300% this year, okay, granted, everybody’s locked in. Then next year, we’re somehow going to grow 34% off that base, as if people aren’t using it like crazy right now. And then you come down to 21% and then you pop up to 40%. I’m sure they have some product that they’re releasing or something. I mean, these people aren’t stupid that are modeling it, but how are we going to grow 34% off of this space? Kids are in school on Zoom. You can’t do anything without being on Zoom. We’re going to go 34% of that base?

Tobias: It was one less as of yesterday.

Bill: I can’t wait to get the fuck off Zoom. You’ll see me zero times next year on it.

Tobias: Yeah.

Jake: [laughs]

Bill: Every corporate meeting is on Zoom right now. We’re going to grow off that base? I don’t know, man. I just don’t trust that. Maybe I’m the idiot.

Jake: Here’s the thing. It could work, but you don’t want to make that bet 100 times.

Bill: Yeah. I think that’s right. Your odds offered are really bad. Now, said the same thing last year. [crosstalk]

Jake: You said the same thing 200% ago.

Tobias: Do people get locked in– [crosstalk]

Bill: 200%, dude, it opened the year to $21.3 billion company, now it’s 117.

Tobias: Do people get locked into this– does this network effect eventually occur with everybody’s just on Zoom and it’s just easier to be on Zoom? What do you think–?

Bill: I’m sure a bull would tell you that, right?

Jake: No way, dude. Skype is just as good to me. Google Hangout or Google Meet or whatever, just as good. FaceTime? I mean, I don’t know, whatever, man.

Bill: Well, like all the people that are sitting at home that started a podcast now that are like recording on Zoom. I mean, think of how many things happened on Zoom, because nobody had anything else to do. We’re going to grow 34% off that base?

Tobias: It’s growing 40% between here and 2024. Or, it’s growing 40% in the year 20– 40% per year.

Bill: 2022. This is consensus of Bloomberg. 2022, the year ended 131. 2022, you’re looking at 34% revenue growth. The year ended 131, 2023, 21%. The year ended 131, 2024, 40%.

Tobias: Why does it take off?

Bill: I don’t know. This is what I’m asking.

Jake: Because you need that to get to this valuation.

Tobias: I think I see what I’ve been doing wrong. I’ve been fading[?] these things. I should have been compounding them, accelerating them, accelerating those metrics.

Jake: Yeah, rookie numbers. You need to bump up those rookie numbers.

Tobias: That’s what I’m doing [crosstalk] now.

Bill: If I was underwriting this thing, I’d be like, “Alright, so next year, we figure usage and everything falls off like 30%.” And I’d rebase my estimates from that.

Tobias: Well, maybe that’s what they’re doing.

Bill: I don’t know, you got 7.4 billion of sales, and the year ended 131, 2025. We’ll see, maybe it works. They are doing a lot in phones. I like their Investor Day, seems like a cool company. Better be, they’re selling a lot of dreams for $118 billion. If you don’t know how to sell it to the street, it’s crazy.

Tobias: Oh.

Bill: [laughs]

Jake: Sobering.

Tobias: How’s your Qurate-Zoom Video Communications bet going? Let’s get an update on that.

Bill: I don’t know. I think I’m winning. Who cares? I got two and a half years, man.

Tobias: Yeah, that’s fair. I just wanted to say the inflection point.

Bill: I think I’m pretty certain that Qurate’s ahead.

Jake: I think you’re ahead.

Tobias: It’s going to be tough now. There we go, that’s good. Chalk one up for the old value guys. Not we can take a knee, two and a half years to run on it, but let’s keep going.

Bill: I think [crosstalk] going to have a really good quarter. The stock market being up helps the wealth effect of the consumer. She’s at home. She probably needs some retail therapy. I think they got another–

Tobias: Doing Zoom Video Communications calls.

Bill: Yeah.

Jake: Between Zoom calls. [laughs]

Bill: She’s going to see David, forget about our pain. We’re just selling air fryers.

Jake: [laughs]

Tobias: All right, amigos. That’s right on full time. We’re all going to be here next week.

Bill: Yeah.

Jake: For better or worse.

[laughter]

Bill: That’s right. Yeah, maybe we will say something worth listening to next week.

Jake: Let’s redouble our efforts and come back with something a little better here.

Tobias: All right, fellas.

Bill: I had a great time.

Tobias: See you next week, folks. Ciao.

Jake: Cheers.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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