$ZM

2019 revenue: 330 mil.

2% op margin.

op cash flow 51 mil and FCF 23 mil

Like PTON since 2019 had 3 years of incredible yoy revenue growth: 88%, 325%, 54%. Then significant slowing of growth yoy in 2022 of 7%.

Already, 2 things are dramatically different than PTON. ZM had FCF since before then the “at home tailwind” and its revenue growth has slowed, A LOT, but not contracted. I’d take slowing growth over contraction any day.

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TTM

Revenue 4.42 bil (13x from 2019)

2% op income (same)

Op cash flow 1.29 bil. FCF 1.47

Also like PTON, ZM is shifting a ton of expense to SBC. 1.2 bil worth in 2022. More than twice the SBC handed out in 2020 and 2021 combined! In fact 27% of revenue the last 4 quarters was given as SBC dilution. But will ZM having FCF they were able to buy back a bil dollars in shares in 2022. Causing share count actually decrease by 1% yoy in the most recent quarter.

Don’t get me wrong. You don’t want a company giving out a quarter of its revenue as SBC. ZM share count is up 6% since IPO. PTON share count is up 23%!

ZM sells at a premium to PTON

PEG 1.37. PE 193. P/cash flow 17. P/sales 4. PTON PS is 0.9. It doesn’t have any other valuation numbers.

ZM’s best asset is 5.5 bil in cash compared to a market cap of 19.4 bil. It does not have long term debt. But despite this I don’t know if ZM is a good buying opportunity today. ROE of 0 and ROI of 0.6. And despite 13x increase in its revenue, it hasn’t been able to improve margins. And ZM has only been able to maintain its anemia 2% op margin by non-GAAP-ing its employees salary expense as SBC.

Other than a cash pile equal to the GDP of Fiji, the only other bright spot is ZM’s enterprise customer growth. 20% last quarter and 13% this quarter. Enterprise revenue is 57% of revenue. As the smaller employer and average Joe returns to in person meetings the remaining 43% of ZMs revenue will continue to contract. IMO it’ll be 2-3 years until this contracts enough that its enterprise customer growth shines enough to be felt on the top and hopefully bottom line. They need to continue to add value to enterprises to maintain double digit growth to remain a successful company.

ZM is a verb but that doesn’t mean it’s without competition. They do command a healthy 55% of the video conference market. 21% Microsoft teams, 13% gotomeeting, 9% WebEx, 5% google meet.

Stay at home was simultaneously a boom for ZM the business and a roller coaster nightmare for ZM the stock. Let’s set up an alternate reality. Pretend the pandemic never happened and ZM grew revenue at a CAGR of 20% for 14 years. Starting in 2019 with 330 mil revenue and end 2033 with 4.4 bil in revenue. ZM the stock would have had the same success as CRM the stock.

But now that ZM had 2 decades of fast growth crammed into 3 years ZM has become what Peter Lynch calls a stalwart. IMO they have 2 options. Use that mountain of cash to acquire a new vertical in pursuit of growth or they need to start paying a dividend.

ZM isn’t a buy today but I will continue to hold.