Zoom: More Than Just Meetings

Zoom is one of the world’s leading communication and collaboration platforms and became a household name during the pandemic as businesses, schools, and individuals rapidly adopted video conferencing to stay connected. Today, the company offers far more than meetings, combining video communication, cloud telephony, customer support software, employee engagement tools, and artificial intelligence into a unified platform designed for modern work. With a strong reputation for reliability, ease of use, and continuous innovation, Zoom aims to evolve from a video conferencing provider into an AI powered productivity platform that helps organizations collaborate, communicate, and automate workflows more efficiently. The question remains: Does this communications leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Zoom at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Zoom, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Zoom Communications was founded in 2011 by Eric Yuan with the ambition of making business communication simpler, more reliable, and easier to use. The company has evolved from being primarily a video conferencing provider into a broader enterprise communications platform designed to help businesses collaborate, communicate, and engage both employees and customers. Zoom’s platform combines products such as Zoom Meetings, Zoom Phone, Zoom Team Chat, Zoom Docs, Zoom Whiteboard, Zoom Contact Center, Zoom Events, and Workvivo into a unified ecosystem that increasingly incorporates artificial intelligence through Zoom AI Companion. While Zoom became globally recognized during the pandemic for video conferencing, the company today positions itself as an AI-first collaboration platform focused on enabling what it describes as a “system of action,” where communication is transformed into completed work outcomes. Businesses use Zoom not only for meetings but also for cloud telephony, internal collaboration, customer support, sales intelligence, employee engagement, webinars, and hybrid work management. Zoom serves customers ranging from individuals and small businesses to many of the world’s largest enterprises across industries such as healthcare, finance, education, government, retail, and manufacturing. The company’s business model is subscription based, generating recurring revenue from organizations that pay for access to various communication and productivity tools. Zoom combines a self-service online sales model for smaller customers with a direct enterprise salesforce for larger organizations. A defining characteristic of Zoom’s strategy is its openness and flexibility. Rather than forcing customers into a closed ecosystem, Zoom integrates with widely used software providers such as Microsoft, Google, Salesforce, Slack, Atlassian, and ServiceNow, allowing customers to adopt Zoom products while continuing to use existing workplace tools. This open architecture helps Zoom meet customers where they are in their digital transformation journey while lowering switching friction. Artificial intelligence has become an increasingly important part of Zoom’s platform. Through Zoom AI Companion, the company embeds AI across meetings, chat, phone, contact center, and employee communication workflows to automate repetitive tasks, summarize meetings, extract action items, improve productivity, and support customer service teams. Unlike many competitors, Zoom follows a federated AI approach, dynamically selecting from multiple AI models, including proprietary models as well as those from partners such as OpenAI, Anthropic, and NVIDIA, depending on the task. Zoom also emphasizes privacy and trust by not using customer audio, video, chat, or meeting data to train either Zoom’s or third-party AI models. As flexible and hybrid work continue to reshape how organizations operate, Zoom aims to position itself as an essential communication layer that connects people, workflows, and customer interactions across organizations. Zoom’s competitive moat is primarily built on reliability, ease of use, trust, and an increasingly integrated communications ecosystem. Reliability is arguably one of Zoom’s strongest advantages because communication tools are mission critical. Businesses cannot tolerate outages, poor call quality, or unstable meetings when internal collaboration, customer conversations, or critical business decisions depend on them. Zoom has spent years building a highly scalable global infrastructure optimized for video, voice, and collaboration, including proprietary routing technology that dynamically selects the most efficient pathways for meetings and intelligently adjusts to bandwidth and device limitations. This infrastructure is difficult to replicate because video collaboration is technically demanding, requiring real-time encoding, decoding, synchronization, and optimization across millions of devices and network environments. While new software tools and AI coding assistants can make it easier to build simple applications, building a highly scalable, enterprise-grade communication platform with low latency, strong reliability, and seamless user experience remains extremely challenging. Much of Zoom’s underlying technology has been refined over many years and includes complex engineering work that is not easily reproduced. Ease of use further strengthens Zoom’s position. “Zoom just works” has become an important part of the company’s brand identity, with customers consistently choosing the platform because meetings are simple to join, intuitive to use, and require minimal technical friction. This ease of adoption lowers employee resistance and improves productivity, creating an advantage over more complex communication systems. Trust and security represent another key component of Zoom’s moat. Enterprise customers increasingly require strong security, compliance, privacy, and encryption capabilities, particularly in industries such as healthcare, finance, and government. Zoom has invested heavily in enterprise readiness, including end-to-end encryption, customer-managed encryption keys, post-quantum encryption capabilities, and privacy protections that allow organizations to maintain control over sensitive information. Because communication is often mission critical, customers are unlikely to switch providers if they trust a platform to securely handle important meetings, calls, and customer interactions. Zoom’s ecosystem also strengthens switching costs over time. While video conferencing alone may be relatively easy to replace, customers that adopt multiple Zoom products such as Meetings, Phone, Team Chat, Contact Center, Docs, Events, and AI Companion become increasingly embedded in the platform. This creates a more integrated workflow where communication, collaboration, and customer engagement happen in a unified environment. The more products a customer adopts, the greater the operational friction of switching to another provider. Zoom’s open platform and extensive integration ecosystem further reinforce this advantage, with more than 3.100 applications available in its marketplace and integrations with widely used enterprise software. Importantly, Zoom does not force customers into an all-or-nothing ecosystem but instead complements tools from Microsoft and Google, increasing adoption flexibility. Customer stickiness also appears meaningful, with more than 75% of Zoom’s online customers remaining on the platform for over 18 months, suggesting recurring usage patterns and durable engagement. Finally, Zoom’s growing AI capabilities could become an additional competitive advantage. By embedding practical AI tools directly into workflows at no extra cost for many paid users, Zoom increases the value of its platform while improving productivity and engagement. Features such as automated meeting summaries, action item generation, call intelligence, and AI-powered customer service deepen customer dependence on the ecosystem. Combined with strong customer satisfaction ratings, industry recognition, and a trusted global brand, these advantages create a competitive position that may be more durable than investors often assume, particularly as Zoom expands beyond video conferencing into a broader enterprise communications and productivity platform.

Management

Eric S. Yuan is the Founder and CEO of Zoom Video Communications, a company he launched in 2011 with the goal of making video conferencing frictionless, scalable, and user-friendly. Eric Yuan brings more than two decades of experience in enterprise communications and collaboration technology. Prior to founding Zoom, Eric Yuan served as Vice President of Engineering at Cisco, where he led the engineering team responsible for Cisco WebEx, one of the leading web conferencing platforms at the time. Eric Yuan joined Cisco after the company acquired WebEx in 2007, where he had been one of the founding engineers and played an important role in growing the business from zero to approximately $800 million in annual revenue. The idea behind Zoom came from Eric Yuan’s belief that existing video collaboration tools were too complex, unreliable, and frustrating for users. While still at Cisco, Eric Yuan saw an opportunity to build a better product, but when his ideas for improving WebEx were not fully embraced, he decided to leave and build Zoom from the ground up. This background is important because Zoom was not created by a generalist manager entering a hot market, but by a technical founder with deep industry knowledge and a clear understanding of what customers disliked about existing solutions. Under Eric Yuan’s leadership, Zoom quickly gained adoption because it focused on reliability, ease of use, and customer happiness. The company became especially important during the COVID-19 pandemic, when Zoom turned into a vital platform for work, education, healthcare, and personal connection around the world. Eric Yuan also guided Zoom through its 2019 IPO and has since overseen its evolution from a video conferencing company into a broader communications platform that includes meetings, phone, chat, events, contact center solutions, employee engagement tools, and AI-powered productivity features. Born and educated in China, Eric Yuan holds a bachelor’s degree in applied mathematics with a minor in computer applications from Shandong University of Science and Technology, and a master’s degree in geological engineering from the China University of Mining and Technology in Beijing. Eric Yuan later completed an executive education program at Stanford University. Throughout his career, Eric Yuan has built a reputation as a product-focused and customer-focused leader. He is known for emphasizing simplicity, reliability, speed of innovation, and a company culture built around delivering happiness to customers. His leadership has also been recognized externally, including being named to the Bloomberg 50 and ranked as the number one CEO of a large U.S. company by Glassdoor in 2018, reflecting strong employee satisfaction under his leadership. As a founder-CEO, Eric Yuan has a deep personal connection to Zoom’s mission and culture, which can be an advantage as the company navigates its next phase. Zoom is no longer simply benefiting from pandemic-driven demand, and Eric Yuan now has to prove that the company can become a broader enterprise communications and AI-first collaboration platform. Given his technical background, customer-first mindset, operational track record, and long-term ownership mentality, Eric Yuan appears well suited to guide Zoom through this transition.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year.  Zoom went public through its IPO in 2019, and because the company’s fiscal year runs from February to January, we only have meaningful data beginning in fiscal year 2021. The fiscal year 2020 figure does not represent a full operating year as a public company. Zoom has managed to achieve a ROIC above 10% in two out of the seven years for which we have data, peaking during the pandemic before declining sharply as growth normalized. However, an encouraging sign is that ROIC has improved every year for the past four fiscal years, increasing from 3,2% in fiscal year 2023 to 9,3% in fiscal year 2026, approaching the 10% threshold that we like to see. The unusually high ROIC during fiscal years 2021 and 2022 was largely driven by the extraordinary circumstances of the pandemic. During this period, Zoom experienced explosive demand as businesses, schools, governments, and individuals rapidly adopted video communication tools. Revenue and profitability expanded at an exceptional pace, while the company’s capital base had not yet fully adjusted to this surge in demand. This created temporarily elevated returns on capital that are unlikely to have been sustainable over the long term. As the world reopened and demand normalized, Zoom’s revenue growth slowed considerably, which naturally reduced profitability and led to a sharp decline in ROIC. Several structural factors also contributed to the decline in returns following the pandemic. First, Zoom continued to invest heavily in broadening its platform beyond video conferencing. The company expanded into products such as Zoom Phone, Contact Center, Events, employee engagement through Workvivo, and AI powered productivity tools. These investments increased Zoom’s capital base before the full financial benefits had materialized. Second, Zoom significantly increased research and development spending to remain competitive in an increasingly crowded market. Management has prioritized building AI capabilities, improving collaboration tools, and strengthening enterprise functionality, all of which weigh on short term profitability but may support stronger growth and returns in the future. Despite the decline from pandemic highs, there are reasons to be cautiously optimistic about the recent trajectory. ROIC has improved every year since fiscal year 2023, suggesting that Zoom is gradually earning more profit from the capital employed in the business. Management has become more disciplined with costs, margins have improved, and investments made during prior years are beginning to contribute more meaningfully to profitability. In other words, Zoom appears to be transitioning from a period of aggressive investment and post pandemic normalization toward one of more balanced and efficient growth. Looking ahead, the key question is whether Zoom can sustainably push ROIC back above 10%. Much will depend on management’s ability to successfully expand higher value products such as Zoom Phone, Contact Center, and AI Companion while maintaining profitability in its core Meetings business. If Zoom succeeds in becoming a broader enterprise communications and AI productivity platform rather than remaining primarily a video conferencing provider, the investments of recent years could begin generating meaningfully higher returns. However, competition from companies such as Microsoft and Google remains intense, and continued heavy investment in product development may temporarily weigh on returns. Given the steady improvement in ROIC over the past four years, the direction is clearly encouraging, but I would still like to see Zoom consistently generate ROIC above 10% before considering returns on capital truly attractive.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Since Zoom went public through its IPO in 2019, we only have equity data for the past several fiscal years. One encouraging sign is that Zoom has increased equity every single year since becoming a public company, growing from $834 million in fiscal year 2020 to nearly $9,8 billion in fiscal year 2026. However, the pace of growth has slowed considerably after the extraordinary years during the pandemic, which is natural given the company’s maturation and more normalized growth profile. One of the main reasons Zoom’s equity has increased consistently is profitability. Unlike many software companies that prioritize growth at the expense of earnings, Zoom has remained profitable for most of its life as a public company. Since Zoom does not pay a dividend, profits are retained within the business rather than distributed to shareholders. These retained earnings accumulate over time and increase shareholder equity on the balance sheet. The exceptionally strong growth in equity during fiscal years 2021 and 2022 was largely driven by the pandemic, when Zoom experienced explosive demand from businesses, schools, and consumers. During this period, profitability surged as revenue grew much faster than operating costs, allowing equity to expand rapidly. Another factor contributing to equity growth has been stock based compensation. Like many technology companies, Zoom uses stock awards as part of employee compensation, particularly for engineers and executives. While this does dilute shareholders somewhat over time, it also increases additional paid in capital and therefore contributes positively to reported equity. In addition, Zoom strengthened its balance sheet shortly after its IPO through share issuance, giving the company significant financial flexibility to invest in product development, acquisitions, and infrastructure expansion without relying on debt. The slower growth in equity in recent years reflects a business transitioning from hypergrowth to a more mature phase. Equity still increased by nearly 10% in fiscal year 2026, but that is far below the extraordinary gains of more than 300% during the pandemic. This moderation is not necessarily a negative sign. Rather, it reflects more normalized profitability, slower revenue growth, and a larger equity base that naturally becomes harder to grow at the same pace over time. At the same time, Zoom has invested heavily in expanding its platform through areas such as AI, Zoom Phone, Contact Center, and acquisitions like Workvivo, which may support future growth but do not immediately translate into sharply higher equity growth. Looking ahead, I expect Zoom’s equity to continue growing, although likely at a much slower pace than during the pandemic years. The key reason is that Zoom remains profitable, generates strong free cash flow, and still retains earnings rather than paying dividends. As long as the company continues earning more than it spends and avoids excessive shareholder dilution, equity should continue moving higher over time. However, future growth will depend on Zoom’s ability to successfully evolve from primarily a video conferencing company into a broader enterprise communications and AI productivity platform. If management succeeds, steady double digit equity growth may still be achievable, although the extraordinary increases seen during fiscal years 2021 and 2022 are unlikely to return.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Zoom has historically generated strong free cash flow and high free cash flow margins. Since going public, the company has consistently produced positive free cash flow, with margins often exceeding 30% and reaching above 50% during the pandemic. Even after growth normalized, Zoom continued to generate nearly $2 billion in annual free cash flow in fiscal year 2026 with a levered free cash flow margin of 39,5%, which is very strong by most standards. This reflects the underlying strength and efficiency of Zoom’s business model. One of the main reasons Zoom generates such strong free cash flow is the nature of its software business model. Most of Zoom’s revenue comes from recurring subscriptions, which provide predictable and recurring cash inflows. Unlike many businesses that need to repeatedly win new customers to sustain revenue, Zoom benefits from an installed customer base that renews subscriptions over time. Management has also highlighted that more than 75% of customers in its online business have been with Zoom for more than 18 months, which suggests a relatively sticky customer base. This recurring revenue model creates a strong foundation for consistent cash generation. Another important reason is that Zoom operates an asset light business model. While video communication requires substantial technological expertise and infrastructure, Zoom does not require heavy spending on factories, retail locations, or expensive physical assets. Most investments are directed toward software development, cloud infrastructure, product improvements, and data center capacity. As a result, capital expenditures remain relatively modest compared to the amount of cash generated by the business. Even with investments in infrastructure and product development, Zoom converts a large portion of revenue into free cash flow. High operating margins also contribute to Zoom’s cash generation. During the pandemic, free cash flow margins reached unusually high levels because demand surged while costs did not rise nearly as quickly as revenue. Millions of businesses, schools, and consumers adopted Zoom at the same time, creating a temporary period of extraordinary profitability. Although margins have normalized since then, they remain very attractive. Free cash flow has stayed relatively stable in the range of approximately $1,2 billion to $1,9 billion over the past several years, while margins have generally remained above 25%. In fact, margins have improved significantly since fiscal year 2023, rising from 27,0% to 39,5% in fiscal year 2026. This suggests that Zoom has become more disciplined with spending and more efficient at converting revenue into cash despite slower top line growth. Management expects free cash flow to decline modestly in fiscal year 2027, but the reasons appear temporary rather than structural. One reason is higher capital expenditures related to refreshing infrastructure across Zoom’s U.S. data centers following the post pandemic period. Management expects this to increase capital expenditures by approximately $75 million. Another factor is lower interest income as interest rates decline, which impacts returns earned on Zoom’s large cash balances. In addition, Zoom has shifted part of employee compensation away from stock based compensation and toward cash compensation. While this improves profitability from an accounting perspective, it creates some temporary pressure on free cash flow. Importantly, management has emphasized that these factors are timing related and expects free cash flow to resume growing beyond fiscal year 2027. Looking ahead, I expect Zoom to remain a strong free cash flow generator. The company’s business model continues to benefit from recurring subscription revenue, high margins, and relatively modest capital requirements. If Zoom succeeds in expanding products such as Zoom Phone, Contact Center, AI Companion, and enterprise offerings, revenue growth could reaccelerate while still maintaining attractive economics. However, free cash flow margins may fluctuate depending on the level of investment in AI, infrastructure, and new products. Competition from Microsoft and Google may also require Zoom to continue investing heavily to remain competitive. Even so, the economics of software businesses tend to scale well, and Zoom’s ability to consistently generate large amounts of cash suggests that free cash flow should remain strong over time. Zoom primarily uses its free cash flow in three ways. First, the company reinvests in the business through research and development, infrastructure upgrades, acquisitions such as Workvivo, and new product capabilities, particularly in AI and enterprise communications. Second, Zoom has increasingly focused on returning cash to shareholders through share repurchases. Management has authorized approximately $3,7 billion in buybacks and has already executed roughly $2,7 billion. Importantly, management has stated that from fiscal year 2027 and beyond, buybacks will at a minimum offset share dilution from stock based compensation, reflecting confidence in the business and a greater focus on shareholder returns. Third, Zoom maintains financial flexibility through its strong balance sheet, allowing it to continue investing in growth opportunities without relying on debt. The free cash flow yield suggests that the shares are currently trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three year period. We calculate this by dividing total long term debt by earnings. However, it is not possible to apply this calculation to Zoom because the company has no debt, which I believe is a positive aspect. In fact, Zoom has operated without long term debt since its IPO, which I view as a sign of financial strength. Having no debt gives Zoom significant financial flexibility. It means the company can fund operations, invest in product development, expand AI capabilities, pursue acquisitions, and return capital to shareholders without relying on borrowed money. This lowers financial risk for shareholders and makes the business more resilient during periods of economic uncertainty or slower growth. It also provides management with optionality. If attractive growth opportunities emerge, Zoom has the balance sheet strength to act quickly without being constrained by leverage. The fact that Zoom has been able to scale into a highly profitable global communications platform while remaining debt free suggests a business with strong underlying economics and disciplined capital allocation.

Unlock Exclusive Seeking Alpha Discounts – Level Up Your Investing With Zero Risk

If you’ve been thinking about improving your investing process, this is the easiest way to start. These offers are only available through my links, and the Premium plan even comes with a 100% risk-free 7-day trial. Try everything for a week, and if it’s not for you, just cancel. You lose nothing.

1) Seeking Alpha Premium — Try It Free for 7 Days

Access the tools I personally use every day:

• Earnings transcripts

• Stock screeners

• Deep-dive analysis

• Portfolio tracking

• Market news with context that actually matters

Special Price: $269/year (normally $299) + 7-day free trial (for new users only)

Try Premium Free for 7 Days → HERE

(Explore everything — cancel anytime during the trial and pay $0.)

2) Alpha Picks — Proven Stock Ideas

This stock-picking service has delivered +287% returns vs. the S&P 500’s +77% (July 2022–Nov 2025).Great for investors who want curated, long-term picks backed by data.

Special Price: $449/year (normally $499)

Get Alpha Picks → HERE

(Although Alpha Picks doesn’t offer a free trial, its historical outperformance means the subscription can often pay for itself quickly if results persist. For many investors, the potential return far outweighs the upfront cost).

3) Premium + Alpha Picks Bundle — Best Value

Get both services together and save $159.Perfect if you want both broad tools and high-conviction stock ideas.

Special Price: $639/year (normally $798)

Get the Bundle → HERE

(This bundle doesn’t include a free trial, but it gives you both services at a $159 discount. You get Premium’s in-depth research plus Alpha Picks’ high-performing recommendations, making it the most comprehensive option for serious investors.)

Risks

Competition is a risk for Zoom because the company operates in a highly competitive and rapidly evolving market where both technology giants and specialized software providers compete for customers. Communication and collaboration tools are essential for businesses, but they are also increasingly commoditized, meaning that basic features such as video meetings, chat, and calling are becoming easier to replicate and are often included as part of broader software packages. As a result, Zoom must continuously innovate and prove why customers should continue paying for its products rather than switching to competing platforms. Zoom’s biggest competitive challenge comes from large productivity suite providers such as Microsoft and Google. Both Microsoft 365 and Google Workspace bundle communication tools like Teams and Meet together with email, document creation, cloud storage, calendars, and productivity software. This creates a powerful competitive advantage because many organizations already pay for these platforms and effectively receive video conferencing at little or no additional cost. In contrast, Zoom often has to justify a separate software expense. For many businesses, particularly large enterprises focused on reducing costs and vendor complexity, consolidating communication and productivity tools into a single ecosystem can be an attractive proposition. This bundling strategy may make it harder for Zoom to win new customers or retain existing ones, particularly if decision makers believe competing products are “good enough” despite Zoom potentially offering a superior user experience. Another challenge is that Zoom competes across multiple categories rather than just video conferencing. In meetings, the company competes with legacy providers such as Cisco Webex and GoTo. In cloud telephony through Zoom Phone, competitors include companies such as RingCentral, Avaya, and 8x8, all of which have years of experience and established customer relationships. In contact center software, Zoom faces experienced competitors such as Five9, Genesys, and NICE, companies that have spent years developing specialized customer support platforms and building deep relationships with enterprise customers. Because Zoom is expanding into these newer categories to diversify beyond video conferencing, it is often competing against companies with more mature products and deeper expertise in those specific markets. Competition is also intense among smaller businesses and consumers. Companies such as Apple, Amazon, and Meta offer communication products that are often free or deeply integrated into devices and ecosystems consumers already use. While these offerings may not always match Zoom’s enterprise functionality, they can still be sufficient for smaller organizations or price-sensitive customers. Because communication software is often price sensitive, lower-cost or free alternatives create ongoing pricing pressure. Zoom itself has acknowledged that competition has, at times, forced the company to offer discounts and pricing incentives to attract or retain customers. If competitive pressure intensifies further, Zoom may face lower pricing power, which could weigh on margins and profitability over time. Many of Zoom’s competitors also possess structural advantages that Zoom lacks. Larger companies often benefit from stronger brand recognition, broader product portfolios, deeper customer relationships, larger marketing budgets, and more established partner ecosystems. They may also have stronger relationships with hardware manufacturers, resellers, and enterprise IT departments, giving them additional distribution advantages. Some competitors may also make acquisitions or strategic partnerships that expand their capabilities faster than Zoom can organically build them.

Macroeconomic factors are a risk for Zoom because demand for the company’s products is closely tied to how much businesses and consumers are willing to spend on technology. While communication and collaboration tools are important for many organizations, software spending can still be affected by broader economic conditions. During periods of economic growth, businesses are more likely to invest in digital transformation, expand their software usage, hire employees, and sign longer or larger contracts. In contrast, periods of inflation, recession, financial instability, or economic uncertainty often lead companies to become more cautious with spending. When budgets tighten, information technology expenses are frequently scrutinized, and software subscriptions may be reduced, consolidated, or delayed. One challenge for Zoom is that customers may view the platform differently during economic downturns. Some organizations see Zoom as a cost-saving tool because it reduces the need for business travel and enables more flexible work arrangements. However, other customers may view certain Zoom subscriptions as discretionary spending, particularly if they already have access to alternatives bundled with platforms such as Microsoft 365 or Google Workspace. In these cases, companies under financial pressure may downgrade subscriptions, reduce the number of paid seats, negotiate lower prices, or switch to bundled alternatives that appear more cost effective. This can result in slower customer growth, higher churn, longer sales cycles, and weaker renewal rates. Zoom has already acknowledged that difficult macroeconomic conditions, including inflation and broader uncertainty, have negatively affected demand in recent years. The company has experienced customer losses, reduced platform usage in some areas, and softer spending from certain businesses, particularly smaller organizations that tend to be more economically sensitive. Economic uncertainty can also delay purchasing decisions among larger enterprise customers, as companies often take longer to approve software budgets or prioritize only mission critical spending. This may slow Zoom’s ability to expand products such as Zoom Phone, Contact Center, and AI Companion, which are important drivers of future growth. Geopolitical tensions also represent an important risk for Zoom. The company has historically relied on engineering talent in China, where labor costs are lower and a significant portion of research and development activities have been based. While this has helped Zoom control costs and accelerate product development, it also creates exposure to rising tensions between the United States and China. Increasing political scrutiny, regulatory restrictions, tariffs, or limits on cross border technology collaboration could disrupt operations or make it more difficult for Zoom to recruit and retain talent in the region. Given the growing importance of cybersecurity and data privacy, companies with Chinese operations may also face increased scrutiny from governments and enterprise customers. If geopolitical tensions intensify, Zoom could face higher costs, operational disruptions, or slower product development.

Remote work trends are a risk for Zoom because much of the company’s extraordinary growth during the pandemic was driven by the sudden global shift toward remote work. When offices closed and travel came to a halt, businesses, schools, healthcare providers, and governments rapidly adopted video communication tools to maintain productivity and stay connected. During this period, Zoom became a household name, and usage grew at an unprecedented pace. However, the environment that fueled this exceptional growth has changed significantly. As pandemic restrictions eased, many organizations began encouraging or requiring employees to return to physical offices, at least part of the time. This shift has created uncertainty around the long term demand for video collaboration tools and whether the extraordinary levels of engagement seen during 2020 and 2021 can be sustained. A growing number of companies and government agencies have introduced return to office mandates in recent years. Large employers such as JPMorgan, Amazon, and AT&T, along with many public sector organizations, have increasingly emphasized in person collaboration. The reasoning is often tied to concerns about productivity, culture, training, and employee engagement. If more organizations move toward office centric work environments, the need for frequent internal video meetings may decline. Employees who are physically present in the same office are less likely to rely on video conferencing for day to day collaboration, which could reduce Zoom usage and make it harder for the company to expand paid licenses over time. The challenge for Zoom is that usage and engagement matter. While a customer may not immediately cancel a subscription if employees spend more time in the office, lower platform engagement could gradually weaken customer stickiness. If fewer meetings are hosted or employees rely less on Zoom for daily collaboration, organizations may become more willing to reduce licenses, downgrade plans, or reconsider whether they need a standalone communication platform at all. This becomes particularly relevant because many businesses already have access to alternatives such as Microsoft Teams or Google Meet through broader productivity software subscriptions. If Zoom usage declines meaningfully, companies may decide that bundled solutions are sufficient, increasing customer churn or pricing pressure. Another risk is that the market opportunity for Zoom may ultimately prove smaller than investors expected during the pandemic. During 2020 and 2021, many investors assumed remote work would permanently replace traditional office environments and create a structurally larger market for video communication tools. While remote work has clearly become more accepted than before the pandemic, the reality appears to be more balanced. Fully remote work arrangements have become less common, while hybrid work models, where employees split time between home and the office, have emerged as the dominant trend in many industries. Hybrid work still supports demand for Zoom because companies need reliable communication tools to connect remote employees, global teams, customers, and external partners. However, hybrid work likely results in more moderate and predictable demand than the extraordinary surge experienced during the pandemic.

Reasons to invest

Artificial intelligence is a reason to invest in Zoom because the company is increasingly transforming itself from a communication platform into what management describes as an “AI powered system of action” for modern work. Historically, Zoom was primarily known for video conferencing, but management now sees AI as an opportunity to move higher up the value chain by turning conversations into completed actions, workflows, and business outcomes. Instead of simply hosting meetings, Zoom aims to help users summarize discussions, automate follow up actions, retrieve enterprise knowledge, complete workflows, and improve productivity across organizations. If successful, this transition could meaningfully expand Zoom’s addressable market and reduce reliance on video conferencing alone. One of the most important aspects of Zoom’s AI strategy is that it is deeply embedded into existing workflows rather than being offered as a standalone feature. Zoom AI Companion is integrated across Zoom Meetings, Team Chat, Phone, Docs, Contact Center, and other parts of the platform. Features such as automated meeting summaries, action item generation, voicemail transcription, smart drafting, contextual search, and workflow automation help users save time and improve productivity. This is important because AI becomes more valuable when it is embedded directly into tools employees already use every day rather than requiring users to adopt entirely new systems. Management has highlighted that monthly active users of AI Companion more than tripled during fiscal year 2026, suggesting growing customer adoption and engagement. Another reason AI could become an important growth driver is monetization. While the standard AI Companion is included for many paid users at no additional cost, Zoom increasingly sees opportunities to monetize premium AI capabilities through products such as Custom AI Companion. This paid offering enables organizations to customize AI workflows, connect third party enterprise applications, build AI agents through no code workflow builders, and access enterprise knowledge retrieval across internal systems. Rather than employees switching between multiple applications, Zoom aims to allow users to access relevant information and complete tasks directly within the Zoom environment. Management believes this capability can move Zoom beyond communication and into workflow execution, creating a higher value proposition for enterprise customers. Zoom also appears to be gaining traction with AI monetization already. Management noted that all of the company’s ten largest customer experience deals in a recent quarter included paid AI components, and Zoom Contact Center annual recurring revenue continues to grow at high double digit rates, partly driven by AI adoption. In addition, management highlighted that seven of the top ten customer experience deals represented competitive displacements of existing providers, suggesting Zoom’s AI enhanced offerings may already be helping the company win market share. Zoom Revenue Accelerator, an AI powered sales productivity platform, also grew strongly, with customer count increasing 50% year over year in fiscal year 2026. A particularly attractive aspect of Zoom’s AI strategy is its federated architecture. Rather than relying on a single large language model, Zoom dynamically combines its own models with leading third party models from companies such as OpenAI, Anthropic, and NVIDIA depending on the task. Management argues that this approach improves flexibility, quality, and cost effectiveness while preventing customers from becoming dependent on a closed ecosystem. For enterprise customers, this flexibility may be appealing because organizations often have varying requirements around security, performance, and compliance. Zoom also emphasizes that customer audio, video, chat, and other communications are not used to train Zoom’s or third party AI models, which may strengthen trust and adoption among enterprise customers concerned about privacy.

Phone, Contact Center, and Workvivo are reasons to invest in Zoom because they demonstrate that the company is successfully evolving beyond video conferencing into a broader enterprise communications and employee experience platform. One of the biggest concerns investors have had about Zoom since the pandemic is whether the company could continue growing once video meeting demand normalized. Products such as Zoom Phone, Zoom Contact Center, and Workvivo are important because they diversify Zoom’s revenue streams, expand its addressable market, deepen customer relationships, and potentially increase switching costs over time. Zoom Phone has become one of the company’s most important growth drivers. The product surpassed 10 million seats during fiscal year 2026 and has maintained durable mid teens annual recurring revenue growth for several years. Importantly, management believes the opportunity remains large because a significant portion of the global business phone market still relies on legacy on premises systems rather than cloud based solutions. Many enterprises have used traditional phone systems for decades and historically saw little urgency to migrate. However, management increasingly believes artificial intelligence could accelerate this transition because older on premises systems are not well suited for modern AI capabilities. Companies that want to use AI powered call summaries, workflow automation, intelligent routing, conversational analytics, and other advanced features may need to migrate to cloud based phone systems first. Zoom believes this creates a structural tailwind for cloud telephony adoption over the coming years. Zoom Contact Center may represent an even larger long term opportunity. The contact center market is substantial and still undergoing a transition from legacy on premises systems toward cloud based and AI driven solutions. Management repeatedly emphasized that Zoom’s Contact Center growth has accelerated, with annual recurring revenue continuing to grow at high double digit rates. A key reason for optimism is that Zoom is not simply selling standalone customer support software. Instead, management believes Zoom’s advantage comes from combining internal collaboration tools and external customer engagement tools on a unified platform. Traditional communication systems often separate internal employee communication from customer support systems, creating silos between teams and workflows. Zoom aims to eliminate these silos by connecting meetings, phone, contact center, AI agents, and workflow automation into one integrated system. This integrated approach may create important competitive advantages. For example, customer support interactions can seamlessly involve internal employees, experts, or managers without switching systems. AI can summarize customer interactions, automate workflows, retrieve enterprise knowledge, and route requests intelligently across the organization. Management refers to this as a “system of action,” where conversations move directly toward outcomes and completed tasks. This broader platform approach appears to be resonating with customers. Management noted that many of Zoom’s largest Contact Center deals also included Zoom Phone, suggesting customers increasingly prefer integrated communication platforms rather than managing separate vendors for different communication functions. Workvivo represents another interesting growth opportunity because it expands Zoom into employee engagement and workplace culture management. Workvivo is designed to improve internal communication, employee engagement, company culture, and organizational connectivity. As hybrid work environments become more common, companies increasingly need digital tools that help employees stay connected and engaged across distributed teams. Workvivo helps address this need by functioning as a modern employee experience platform that combines internal communication, recognition, engagement, and social interaction features.

Innovation is a reason to invest in Zoom because the company operates in one of the fastest moving areas of enterprise software, where the ability to continuously improve products and adapt to changing customer needs is essential for long term success. Communication, collaboration, and productivity tools are rapidly evolving, particularly as artificial intelligence reshapes how people work. Rather than remaining a simple video conferencing provider, Zoom is actively reinventing itself into a broader communications and workflow platform. Management has emphasized that continuous innovation sits at the center of Zoom’s strategy, with engineering teams focused on improving employee experience, customer experience, core communication tools, and department specific or industry specific solutions. One of the clearest signs of Zoom’s innovation culture is the speed at which the company introduces new products and features. Zoom has consistently expanded beyond meetings into areas such as Phone, Contact Center, AI Companion, Revenue Accelerator, Workvivo, and recruiting intelligence through BrightHire. These additions are not random product launches but instead fit into a broader strategy of building what management describes as an “AI powered system of action” where conversations turn into completed workflows and business outcomes. By expanding into adjacent categories, Zoom increases its addressable market while reducing reliance on video conferencing alone. Another important aspect of Zoom’s innovation culture is its strong customer focus. Management has highlighted that part of Zoom’s engineering capacity is specifically dedicated to building customer requested features that can create value across the broader user base. This customer driven product philosophy has historically been one of Zoom’s strengths and was part of what helped the company gain popularity in the first place. Rather than building technology for its own sake, Zoom aims to quickly respond to evolving customer needs and improve the user experience. This approach may help the company maintain relevance even as customer expectations change. Zoom also appears to be accelerating the pace of innovation through its own internal use of artificial intelligence. Management has explained that AI coding tools are helping engineers, designers, and product managers improve productivity and bring products to market faster than before. While AI may not yet fully replace maintaining Zoom’s millions of lines of existing code, management believes it is significantly improving development speed for new products and features. According to management, product development velocity is currently stronger than at any point in Zoom’s history, with customers increasingly responding positively to the pace of innovation. If this proves sustainable, Zoom could strengthen its ability to compete in a rapidly changing software landscape. Another reason to be optimistic is Zoom’s growing focus on both horizontal and vertical innovation. Horizontally, Zoom continues improving its core workplace tools across meetings, phone, chat, docs, and AI powered collaboration. Vertically, the company is increasingly targeting specific workflows and industries through products such as Zoom Revenue Accelerator for sales teams, BrightHire for recruiting, Contact Center for customer service, and AI powered tools for employee engagement through Workvivo. This strategy allows Zoom to penetrate new markets that historically may have been outside its reach while also increasing monetization opportunities.

Support the Blog

I want to keep the blog free and accessible for everyone. If you enjoy the content and would like to support it, you can buy me a cup of coffee through PayPal. Every little bit helps and is truly appreciated!

Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,18, which is from fiscal 2026. I have selected a projected future EPS growth rate of 8%. Finbox expects EPS to grow by 8,3% in the next five years, but I only use up to 15%. Additionally, I have selected a projected future P/E ratio of 16, which is double the growth rate. This decision is based on Zoom's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $52,77. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Zoom at a price of $26,38 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.989, and capital expenditures were 65. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 46 in our calculations. The tax provision was 522. We have 296,1 outstanding shares. Hence, the calculation will be as follows: (1.989 – 46 + 522) / 296,1x 10 = $83,25 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Zoom's Free Cash Flow Per Share at $6.50 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $74.67.

Conclusion

I believe that Zoom is an intriguing company with strong management. The company has built its moat through its reliability, ease of use, trust, and an increasingly integrated communications ecosystem that makes collaboration seamless across meetings, phone, chat, customer engagement, and employee experience. Zoom has achieved an underwhelming ROIC outside of the pandemic, though it has improved every year for the past three years, suggesting that management is becoming more efficient at generating returns on invested capital as the business matures. Free cash flow and free cash flow margins have consistently remained high, which is expected to continue given the company’s asset light software business model and recurring subscription revenue. Competition is a risk for Zoom because the company operates in a highly competitive market where large technology companies such as Microsoft and Google bundle communication tools into broader productivity platforms, making it harder for Zoom to justify a separate subscription. At the same time, Zoom faces pressure from specialized competitors across phone, contact center, and collaboration software, which could lead to slower growth, pricing pressure, and weaker customer retention if the company fails to continue innovating and differentiating its platform. Macroeconomic factors are a risk for Zoom because economic slowdowns, inflation, and uncertainty can lead businesses to reduce or delay software spending, resulting in slower growth, weaker renewals, and customer losses. In addition, geopolitical tensions, particularly between the United States and China where Zoom has significant engineering operations, could disrupt product development, increase costs, or create regulatory challenges over time. Remote work trends are also a risk because much of Zoom’s pandemic driven growth was fueled by remote work, and a broader return to offices could reduce demand for video collaboration tools and lower platform engagement over time. While hybrid work still supports long term demand, the opportunity may ultimately be smaller and more moderate than investors expected during the peak of remote work adoption. Artificial intelligence is a reason to invest in Zoom because the company is transforming itself from a video conferencing provider into an AI powered productivity platform that helps turn conversations into actions, workflows, and business outcomes. By embedding AI across its platform and increasingly monetizing premium AI capabilities, Zoom has an opportunity to deepen customer relationships, expand its addressable market, and create new growth drivers beyond meetings alone. Phone, Contact Center, and Workvivo are also reasons to invest because they demonstrate that Zoom is successfully diversifying beyond video conferencing into faster growing and larger markets such as cloud telephony, customer experience, and employee engagement. These products expand Zoom’s addressable market, deepen customer relationships, create cross selling opportunities, and may increase switching costs as customers adopt more of Zoom’s integrated platform. Innovation is another reason to invest because Zoom continuously expands and improves its platform through new products, AI capabilities, and customer driven features, helping it evolve beyond video conferencing into a broader communications and workflow platform. By innovating quickly across areas such as Phone, Contact Center, AI Companion, and industry specific solutions, Zoom increases its addressable market, strengthens customer relationships, and creates new monetization opportunities over time. Overall, I believe there are many things to like about Zoom, but I also believe there are currently better opportunities in the market. Hence, I will not be investing in Zoom at this time.

My personal goal with investing is financial freedom. It also means that to obtain that, I do different things to build my wealth. If you have some extra hours to spare each month, you can turn a few hours a week into a substantial amount of money in a few years. If you are interested to know how I do it, you can read this post.

I hope you enjoyed my analysis! While I can’t post about every company I analyze, you can stay updated on my trades by following me on Twitter. I share real-time updates whenever I buy or sell, so if you’re making your own investment decisions, be sure to follow along!

Some of the greatest investors in the world believe in karma, and to receive, you will have to give (Warren Buffett and Mohnish Pabrai are great examples). If you appreciated my analysis and want to get some good karma, I would kindly ask you to donate a bit to the animals in Ukraine. The devastating war also hurt the animals, which are often the forgotten souls in such a conflict, IFAW is one organization that helps these animals. If you have a little to spare, please donate to IFAW here. Even a little will make a huge difference to save these wonderful animals. Thank you.