This company is a slot machine and it is a long-term stable technology stock
East Zoom (ZM -2.51%) a good investment and can it continue to grow? In this clip from “3 Minute Stocks Updates” on Motley Fool live, recorded on May 25Motley Fool contributor Brian Withers discusses Zoom’s financials and why it could be a long-term stable stock.
Brian Wither: During the Coronavirus, Zoom has grown from a fast-growing niche service to a mass-market tool for businesses and individuals around the world. Growth rates in 2019 before coronavirus were actually between 80% and around 100% and the company was barely profitable. Since the start of the pandemic, revenue has increased 5x, net income has increased 10x. It’s not a huge gross stock than it once was with an expected revenue growth of 11%, but it’s is always a good investment. Let’s take a look at some of the metrics I liked about the quarter. Turnover increased by 12%. It helps to put it into perspective. In the first quarter of last year, the growth rate was 194%. That’s the classic definition of a hard comp and they’ve grown 12% The expansion rate for enterprise clients is 123%, I love that. RPO, the remaining performance obligations, which is essentially the value of the contract before the company, increased by 44%. This means customers are starting to sign bigger and longer contracts. Operating cash flow, $526 million, I love that. Forty-nine percent cash margin, totally unheard of. Cash is up $1 billion from last quarter, last quarter to this first quarter. You know what? Still no debt, no debt on the balance sheet. Large customers of more than 100,000 increased by 46%. This is a slot that will continue to grow long into the future, but at a slower pace. I like this as a long-term stable tech stock in my portfolio.
Toby Bordelon: Alright Brian. As you wrap up here, where do you see Zoom going, going forward, if growth slows? Are they going to become a big mainstream brand or do they seem to remain a mainstream brand, or are they leaning more into that business side perhaps?
Withers: Yeah. When you go through their presentation of the results, it is to focus on the activities of the company. That’s 52% of their overall revenue right now, and it’s growing faster than their overall business. They’re looking to double down on tools for sales forces, for call centers, and really just for businesses at all levels. I see this as a very sticky and stable platform that will drive long-term subscription revenue growth.