sreekumar
2021-09-15
Lots of risks with this counter. Tread carefully
Is Zoom Video Stock A Buy Or Sell After Q2 Earnings? Projecting The Next 6 Years
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":882639918,"tweetId":"882639918","gmtCreate":1631681744634,"gmtModify":1631888745482,"author":{"id":3564273707562524,"idStr":"3564273707562524","authorId":3564273707562524,"authorIdStr":"3564273707562524","name":"sreekumar","avatar":"https://static.tigerbbs.com/a97ddc4bafacadd0b5f9e66fabe6bbf9","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":1,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Lots of risks with this counter. Tread carefully </p></body></html>","htmlText":"<html><head></head><body><p>Lots of risks with this counter. Tread carefully </p></body></html>","text":"Lots of risks with this counter. Tread carefully","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/882639918","repostId":1149832852,"repostType":4,"repost":{"id":"1149832852","pubTimestamp":1631676900,"share":"https://www.laohu8.com/m/news/1149832852?lang=&edition=full","pubTime":"2021-09-15 11:35","market":"us","language":"en","title":"Is Zoom Video Stock A Buy Or Sell After Q2 Earnings? Projecting The Next 6 Years","url":"https://stock-news.laohu8.com/highlight/detail?id=1149832852","media":"seekingalpha","summary":"Summary\n\nZM has cratered 47% since all-time highs.\nIts recent quarter showed steep deceleration in g","content":"<p>Summary</p>\n<ul>\n <li>ZM has cratered 47% since all-time highs.</li>\n <li>Its recent quarter showed steep deceleration in growth rates, though revenue growth still clocked in at 54%.</li>\n <li>I show why ZM could provide stellar returns over the next 6 years in the bullish scenario.</li>\n <li>I also show why I expect ZM to be a muted performer under more conservative assumptions.</li>\n <li>Looking for a portfolio of ideas like this one? Members of Best Of Breed get exclusive access to our model portfolio.</li>\n</ul>\n<p>Zoom (ZM) might appear to be the worst stock to own right now. It is lapping difficult comparisons, which may lead to significant multiple compression as investors come to terms with steep deceleration in growth rates. It seems more likely for there to be downward surprises than upward surprises in the pace of that deceleration, if not simply because “less deceleration than expected” doesn’t seem likely to trigger a satisfactory positive response. Still, with the stock down nearly 50% from all-time highs, this is a good time to examine if there are value opportunities for those with long-term horizons. I explain why ZM may provide strong returns in the bullish scenario, but also why I predict muted returns over the next 6 years.</p>\n<h3>Zoom Stock Price</h3>\n<p>After peaking just above $560 in late 2020, ZM has cratered 47%.</p>\n<p><img src=\"https://static.tigerbbs.com/8da0a440ca3327753facdac23ccda2fa\" tg-width=\"635\" tg-height=\"417\" referrerpolicy=\"no-referrer\"></p>\n<p>Now trading around $296 per share, is it time to buy?</p>\n<h3>ZM Stock Earnings</h3>\n<p>ZM’s latest earnings results showed 54% top-line growth.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d20c7ae41cf61cbdf13b4487506cd1c1\" tg-width=\"1280\" tg-height=\"652\" referrerpolicy=\"no-referrer\"><span>(2021 Q2 Presentation)</span></p>\n<p>That’s a strong growth rate, but it is a steep deceleration from the 191% YOY growth rates posted in the first quarter and the 326% growth rate posted last year. This deceleration was to be expected, however, as ZM was lapping quarters benefitted by the pandemic. 54% is still a respectable growth rate and it was driven by both customer growth and strong net dollar expansion rate of above 130% for the trailing twelve months.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/76bd01474d684fe65f669e17b9d82b92\" tg-width=\"1280\" tg-height=\"531\" referrerpolicy=\"no-referrer\"><span>(2021 Q2 Presentation)</span></p>\n<p>Unlike many other fast-growing tech companies, ZM is GAAP profitable and earned $316.9 million in net income for $1.04 in earnings per share. Excluding non-cash investment gains, ZM earned $284.8 million in net income or $0.93 in earnings per share. This represents a net margin of 27.9%, which is fantastic considering that ZM has only been a public company for just over 2 years.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/b02fc61e3c9920b2ab8d2630b8d92668\" tg-width=\"1280\" tg-height=\"633\" referrerpolicy=\"no-referrer\"><span>(2021 Q2 Presentation)</span></p>\n<p>Due to the presence of equity-based compensation, ZM earned an even greater free cash flow amount of $455 million, which helped bolster its now $5.1 billion cash hoard. ZM is trading at a $90 billion market cap, so that cash balance may not do much in terms of providing a valuation floor, but it helps de-risk the company in the unlikely event that cash flows turn negative.</p>\n<p>ZM crashed 16% after reporting these results, and some sources stated that the hit was due to a slight miss on expectations. I don’t buy that: I view the selloff as being due to Wall Street aggressively adjusting their forward growth estimates on account of the realization that the “work from home” trend may be coming to an end for many companies.</p>\n<h3>Is ZM Stock A Buy, Sell, Or Hold?</h3>\n<p>At current prices, ZM is trading at around 22x this year’s revenue estimates. Wall Street’s average rating is 3.92 out of 5, suggesting mild bullishness.</p>\n<p><img src=\"https://static.tigerbbs.com/ed5454a681005da5a41ccd3dab54af4b\" tg-width=\"1280\" tg-height=\"234\" referrerpolicy=\"no-referrer\"></p>\n<p>(Seeking Alpha)</p>\n<p>My Seeking Alpha peers have a more neutral assessment:</p>\n<p><img src=\"https://static.tigerbbs.com/bd0aa56f66e89b942dd15964c24e2d1f\" tg-width=\"1280\" tg-height=\"237\" referrerpolicy=\"no-referrer\"></p>\n<p>(Seeking Alpha)</p>\n<p>What’s my take? It really depends on your expectations for future growth. I could see the argument that ZM reached “peak earnings” during the pandemic, as companies across essentially all industries were forced to use video conferencing software. I have seen some argue that ZM has no moat, but I have to disagree on that point - at least anecdotally their software has proven easier to use with more stability than competitors. Prior to the pandemic, I viewed ZM’s growth thesis as being reliant on both growth in the video conferencing market as well as its ability to take market share within that market. While the former part of that thesis will likely slow moving forward, I expect the latter part of that thesis to remain in full force. We can see Wall Street consensus estimates below:</p>\n<p><img src=\"https://static.tigerbbs.com/74aa6e7e41cccac7e3ac9fd872eafd4e\" tg-width=\"1280\" tg-height=\"455\" referrerpolicy=\"no-referrer\"></p>\n<p>(Seeking Alpha)</p>\n<p>While it may be uncomfortable to project growth to slow from the 300+% level in 2020 to 50+% in 2021 and finally to ~20% onwards, it is a believable estimate considering how many years of growth were likely pulled forward in these past two years. I expect ZM to experience material operating leverage - my long-term net margin assumption is 45%. This is due in part to the high current 28% net margin rate, as well as my skepticism that research & development expenses will scale that rapidly for a video conferencing company. Consensus estimates appear reasonable, if not somewhat optimistic. I use a price to earnings growth ratio (‘PEG’) of 2x. Using the $12.2 billion estimate for 2027 revenues, I would expect ZM to trade at around 17.3x sales by the end of 2027. That represents 135% potential upside in the next 6 years, for an average compounded return of 15%. That would arguably be a stellar return - remember that ZM is highly profitable with a strong balance sheet. Valuation aside, ZM should be considered one of the lower risk stocks in the market today.</p>\n<p>The above valuation assessment shows that ZM is not obviously overvalued, but would I buy it today? We need to make the assumptions a bit more conservative to determine that answer. Let’s instead assume 40% long-term net margins, and adjust the growth rate in 2025 to 15% from the current 27%. In this case, ZM would be trading at 8.1x 2027 sales. I also instead use a 1.5x PEG ratio. I would expect ZM to trade at 11.4x 2027 sales using these assumptions. This suggests a 41% upside over the next 6 years, for a compounded annual return of 5.9% - a far cry from the projected return computed earlier. These don’t appear to be overly pessimistic assumptions either - 11.4x sales versus a 19% growth rate appears reasonable, if not still rather optimistic. I note that my 40% margin assumption would be much higher than the consensus estimate for 30% projected net margins in 2027.</p>\n<p>Because I can’t see any reason to increase neither my forward revenue estimates nor my assumptions for profitability, I cannot rate ZM a buy, as 5.9% isn’t the type of return that warrants bullishness. I rate shares a hold, and point to better investments elsewhere.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is Zoom Video Stock A Buy Or Sell After Q2 Earnings? Projecting The Next 6 Years</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs Zoom Video Stock A Buy Or Sell After Q2 Earnings? Projecting The Next 6 Years\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-15 11:35 GMT+8 <a href=https://seekingalpha.com/article/4455135-zoom-video-stock-buy-or-sell-q2-earnings-next-6-years><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nZM has cratered 47% since all-time highs.\nIts recent quarter showed steep deceleration in growth rates, though revenue growth still clocked in at 54%.\nI show why ZM could provide stellar ...</p>\n\n<a href=\"https://seekingalpha.com/article/4455135-zoom-video-stock-buy-or-sell-q2-earnings-next-6-years\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"ZM":"Zoom"},"source_url":"https://seekingalpha.com/article/4455135-zoom-video-stock-buy-or-sell-q2-earnings-next-6-years","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1149832852","content_text":"Summary\n\nZM has cratered 47% since all-time highs.\nIts recent quarter showed steep deceleration in growth rates, though revenue growth still clocked in at 54%.\nI show why ZM could provide stellar returns over the next 6 years in the bullish scenario.\nI also show why I expect ZM to be a muted performer under more conservative assumptions.\nLooking for a portfolio of ideas like this one? Members of Best Of Breed get exclusive access to our model portfolio.\n\nZoom (ZM) might appear to be the worst stock to own right now. It is lapping difficult comparisons, which may lead to significant multiple compression as investors come to terms with steep deceleration in growth rates. It seems more likely for there to be downward surprises than upward surprises in the pace of that deceleration, if not simply because “less deceleration than expected” doesn’t seem likely to trigger a satisfactory positive response. Still, with the stock down nearly 50% from all-time highs, this is a good time to examine if there are value opportunities for those with long-term horizons. I explain why ZM may provide strong returns in the bullish scenario, but also why I predict muted returns over the next 6 years.\nZoom Stock Price\nAfter peaking just above $560 in late 2020, ZM has cratered 47%.\n\nNow trading around $296 per share, is it time to buy?\nZM Stock Earnings\nZM’s latest earnings results showed 54% top-line growth.\n(2021 Q2 Presentation)\nThat’s a strong growth rate, but it is a steep deceleration from the 191% YOY growth rates posted in the first quarter and the 326% growth rate posted last year. This deceleration was to be expected, however, as ZM was lapping quarters benefitted by the pandemic. 54% is still a respectable growth rate and it was driven by both customer growth and strong net dollar expansion rate of above 130% for the trailing twelve months.\n(2021 Q2 Presentation)\nUnlike many other fast-growing tech companies, ZM is GAAP profitable and earned $316.9 million in net income for $1.04 in earnings per share. Excluding non-cash investment gains, ZM earned $284.8 million in net income or $0.93 in earnings per share. This represents a net margin of 27.9%, which is fantastic considering that ZM has only been a public company for just over 2 years.\n(2021 Q2 Presentation)\nDue to the presence of equity-based compensation, ZM earned an even greater free cash flow amount of $455 million, which helped bolster its now $5.1 billion cash hoard. ZM is trading at a $90 billion market cap, so that cash balance may not do much in terms of providing a valuation floor, but it helps de-risk the company in the unlikely event that cash flows turn negative.\nZM crashed 16% after reporting these results, and some sources stated that the hit was due to a slight miss on expectations. I don’t buy that: I view the selloff as being due to Wall Street aggressively adjusting their forward growth estimates on account of the realization that the “work from home” trend may be coming to an end for many companies.\nIs ZM Stock A Buy, Sell, Or Hold?\nAt current prices, ZM is trading at around 22x this year’s revenue estimates. Wall Street’s average rating is 3.92 out of 5, suggesting mild bullishness.\n\n(Seeking Alpha)\nMy Seeking Alpha peers have a more neutral assessment:\n\n(Seeking Alpha)\nWhat’s my take? It really depends on your expectations for future growth. I could see the argument that ZM reached “peak earnings” during the pandemic, as companies across essentially all industries were forced to use video conferencing software. I have seen some argue that ZM has no moat, but I have to disagree on that point - at least anecdotally their software has proven easier to use with more stability than competitors. Prior to the pandemic, I viewed ZM’s growth thesis as being reliant on both growth in the video conferencing market as well as its ability to take market share within that market. While the former part of that thesis will likely slow moving forward, I expect the latter part of that thesis to remain in full force. We can see Wall Street consensus estimates below:\n\n(Seeking Alpha)\nWhile it may be uncomfortable to project growth to slow from the 300+% level in 2020 to 50+% in 2021 and finally to ~20% onwards, it is a believable estimate considering how many years of growth were likely pulled forward in these past two years. I expect ZM to experience material operating leverage - my long-term net margin assumption is 45%. This is due in part to the high current 28% net margin rate, as well as my skepticism that research & development expenses will scale that rapidly for a video conferencing company. Consensus estimates appear reasonable, if not somewhat optimistic. I use a price to earnings growth ratio (‘PEG’) of 2x. Using the $12.2 billion estimate for 2027 revenues, I would expect ZM to trade at around 17.3x sales by the end of 2027. That represents 135% potential upside in the next 6 years, for an average compounded return of 15%. That would arguably be a stellar return - remember that ZM is highly profitable with a strong balance sheet. Valuation aside, ZM should be considered one of the lower risk stocks in the market today.\nThe above valuation assessment shows that ZM is not obviously overvalued, but would I buy it today? We need to make the assumptions a bit more conservative to determine that answer. Let’s instead assume 40% long-term net margins, and adjust the growth rate in 2025 to 15% from the current 27%. In this case, ZM would be trading at 8.1x 2027 sales. I also instead use a 1.5x PEG ratio. I would expect ZM to trade at 11.4x 2027 sales using these assumptions. This suggests a 41% upside over the next 6 years, for a compounded annual return of 5.9% - a far cry from the projected return computed earlier. These don’t appear to be overly pessimistic assumptions either - 11.4x sales versus a 19% growth rate appears reasonable, if not still rather optimistic. I note that my 40% margin assumption would be much higher than the consensus estimate for 30% projected net margins in 2027.\nBecause I can’t see any reason to increase neither my forward revenue estimates nor my assumptions for profitability, I cannot rate ZM a buy, as 5.9% isn’t the type of return that warrants bullishness. I rate shares a hold, and point to better investments elsewhere.","news_type":1},"isVote":1,"tweetType":1,"viewCount":76,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":41,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/882639918"}
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