I didn’t expect to say that, but parts of Focus on video communications (ZM -5.03%) are starting to look like good value, if not a real bargain. Zoom is perhaps the headliner of “work from home” stocks that have soared to all-time highs during the height of the COVID-19 pandemic. At one point, Zoom had a larger market capitalization than Exxon Mobilone of the largest energy companies in the world, and a market valuation greater than that of the world’s seven largest airlines combined.

In hindsight, Zoom shares have gotten far too frothy and the pendulum has clearly swung too far in the bullish direction for many of these work-from-home stocks during this unprecedented time. But just as the market got too rambunctious about Zoom back then, the pendulum seems to have swung too far the other way and the market now looks too bearish on Zoom. Shares fell 15% after the company announced slower growth and lowered its guidance during its second-quarter results, and the stock is now down 77% from its 52-week high at $357.93. The company posted single-digit revenue growth for the first time since 2019 and missed consensus analyst estimates for the first time since its IPO. But here’s why the market looks too bearish on Zoom.

Zoom is starting to look like a… value stock?!

After the sale, Zoom is now trading at a price/earnings multiple of 24. While that’s not exactly cheap from a traditional value investing perspective, it’s not hugely expensive and well below levels at which it was trading during the pandemic. The shares are even cheaper than they appear at first glance when you take into account that the company has $18.51 in cash per share on its balance sheet, which means that almost a quarter of the market value of the business is in cash. In addition to this strong cash position, Zoom has a strong balance sheet with no long-term debt. Zoom is trading at around seven times sales, which isn’t unreasonable for a software stock that has grown like Zoom.

A year ago, at the end of August 2021, Zoom had a market cap of over $100 billion. With a market capitalization of around $25 billion, Zoom now looks like a much more palatable investment and could even become an acquisition target for a larger software company. It’s never a good idea to buy a stock just because it could be acquired, but it illustrates the optionality Zoom has ahead of it.

All about the company

Zoom shares have sold off because growth is slowing, but it’s not like sales have come to a complete halt. The company increased its revenue by 8% to $1.09 billion. While 8% isn’t incredible revenue growth, it’s growth nonetheless, and more impressive considering this quarter is a quarter behind a year ago, when Zoom benefited still favorable winds of working from home. Additionally, revenue topped $1 billion, making it the fifth consecutive quarter that Zoom has surpassed $1 billion in sales, showing that the company may have more long-term sustainability than expected. bears attribute to him.

More importantly, the company appears to continue to gain traction with enterprise customers — customers with more than $100,000 in revenue over the past 12 months are up 37% year-over-year. Zoom is also gaining traction with large enterprises with its Zoom Phone offering. Zoom reports that the number of Zoom Phone customers with 10,000 or more paid seats increased 112% year over year. Zoom landed its two biggest Zoom Phone customers of all time during the quarter — each of these new customers has more than 125,000 paid seats. Within the enterprise, the company has posted an impressive 120% net dollar expansion rate over the past 12 months, indicating enterprise customers are finding value in Zoom’s offerings and expanding their usage. of Zoom over time, which is an encouraging sign for the long term.

What future for Zoom stock?

While some investors have understandably soured on Zoom and categorized it as a work-from-home stock whose best days are in the rearview mirror, it’s not like Zoom is going away anytime soon. More and more people are returning to the office, but many companies are adopting a hybrid model in which people work from the office a few days a week and from home on other days. The zoom will remain a valuable and necessary tool in these settings. Additionally, many companies are being pushed back by employees on their return-to-work plans and may have to accept that a hybrid environment is here to stay.

Besides collaborating with colleagues or conducting a sales call virtually, there are many other growing use cases for Zoom. For example, colleges and universities have widely used Zoom because it allows them to hold classes virtually. Zoom pointed out that UCLA, one of California’s largest universities, added 15,000 Zoom Phone seats to its existing Zoom license during the quarter. Additionally, Zoom noted that it has landed a new telehealth customer who will use its services for its more than 40,000 employees and external users.

Zoom may no longer be the hypergrowth stock it was during the pandemic. But it’s a profitable business that continues to grow and offers a solution that many organizations love – and now looks attractive from a valuation perspective.