Zoom: More Than Just Meetings

Zoom became a household name during the pandemic, but the company is working hard to show it is more than just a video calling app. Today, Zoom offers tools for phone calls, team messaging, document collaboration, and more, aimed at helping people work together whether they are in the office or working remotely. With new growth coming from its customer service product Contact Center and its employee engagement platform Workvivo, Zoom is expanding into new markets. The question remains: Does this former lockdown favorite still deserve a place 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 Video Communications is a U.S.-based software company that provides a cloud-based communications platform for modern collaboration. Founded in 2011 and publicly listed in 2019, Zoom is best known for its video conferencing product, Zoom Meetings. Over the years, the company has expanded its offering into a full suite of tools that includes Zoom Phone for cloud-based telephony, Zoom Team Chat for messaging and file sharing, Zoom Rooms for conference room systems, and Zoom Events and Webinars for hosting large-scale virtual and hybrid events. Zoom also provides an omnichannel customer engagement solution through Zoom Contact Center and Virtual Agent, and it has entered the employee experience space with Workvivo, which enhances internal communication and culture. In addition, the company supports workflow automation and collaboration through Zoom Docs, Whiteboard, Workflow Automation, and Zoom Clips. Developers can build and publish custom integrations through the Zoom Developer Platform and App Marketplace, which features thousands of third-party apps. Zoom’s business model is centered on subscription-based licensing, with customers ranging from individual users to large global enterprises. It serves a wide array of industries such as education, finance, healthcare, government, retail, and media. Most of its revenue comes from customers in the Americas, though it has a growing presence in EMEA and APAC. Zoom’s long-term goal is to be an AI-first work platform that enables seamless human connection through communication, collaboration, and productivity tools. Its AI Companion, launched in 2023, is embedded across its suite of products and powered by an architecture that combines Zoom’s own models with those from OpenAI, Anthropic, and Meta. Zoom’s competitive moat includes strong brand recognition, an easy-to-use platform, and a growing suite of integrated communication tools. The company became globally known during the pandemic, when the word “Zoom” became a verb for video meetings. That brand familiarity created a powerful network effect, especially as many organizations chose to standardize on Zoom because employees and customers were already comfortable using it. The platform is also widely recognized for its reliability and simplicity, features that are especially important in real-time communications. Zoom continues to innovate rapidly, adding hundreds of features each year and investing heavily in AI to enhance productivity and user experience.

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. He 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, a leading web conferencing platform. His journey at Cisco began after the company acquired WebEx in 2007, where he had been one of the founding engineers. During his time at WebEx, he played a pivotal role in growing the business from zero to $800 million in annual revenue. The concept for Zoom originated while Eric Yuan was still at Cisco, where he identified user experience gaps in existing video collaboration tools. When internal efforts to modernize WebEx were not embraced by leadership, he made the decision to leave Cisco and build his vision from the ground up. Under his leadership, Zoom quickly rose to prominence, especially during the COVID-19 pandemic, when it became a vital platform for work, education, and personal connection around the world. Eric Yuan guided the company through its 2019 IPO and has since overseen its transformation into a broad-based communications platform that now includes video conferencing, cloud telephony, chat, events, contact center solutions, and AI-powered productivity tools. 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. He later completed an executive education program at Stanford University. Widely recognized for his entrepreneurial vision and people-first leadership, Eric Yuan has received numerous honors, including being named to the Bloomberg 50 and as one of the most powerful people in enterprise tech by Business Insider. In 2018, he was ranked the number one CEO of a large U.S. company by Glassdoor, reflecting high employee satisfaction under his leadership. Eric Yuan is known for his focus on customer happiness, product innovation, and his long-term commitment to building a trusted, open, and AI-first platform for the future of work. As a founder-CEO, he brings a deep personal investment in the company’s mission and culture, and he is widely regarded as a steady and visionary leader. Given his technical background, operational track record, and ability to navigate rapid growth and evolving market dynamics, I believe Eric Yuan is well-equipped to guide Zoom through its next phase.

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 with its IPO in 2019, and its fiscal year runs from February to January the following year. Hence, we only have data from five years, and the numbers from 2020 do not represent a full year. Zoom has managed to achieve a ROIC above 10% in two out of the six years that we have data, and hasn't managed to achieve a ROIC above 10% since fiscal year 2022. During the pandemic, Zoom experienced explosive growth in both revenue and profits, which helped boost its ROIC to higher levels. But since then, growth has slowed considerably as demand normalized. With smaller increases in profit, Zoom’s returns on the capital it is using have come down. At the same time, Zoom has continued to invest heavily. It expanded its infrastructure, built new AI capabilities, made acquisitions like Workvivo, and built up large cash reserves. These investments increased the amount of capital on the balance sheet, but the profit generated from them has not kept up, so ROIC declined. Zoom has also doubled its R&D spending since 2021, investing in new products and features to stay competitive. While these investments may pay off over time, in the short term they increase costs without immediately boosting profits, which weighs on ROIC. ROIC increased in fiscal year 2025, reaching its highest level since fiscal year 2022. The reason is that Zoom earned more profit per dollar of invested capital, thanks to leaner operations, margin expansion, and disciplined investment.

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. We only have data from the past six years because Zoom went public with their IPO in April 2019. Zoom has steadily increased its equity each year since going public, and one reason why is that the company has consistently been profitable. Instead of paying out those profits as dividends, Zoom has kept them in the business. These retained earnings build up over time and help grow total equity. Zoom has also raised additional capital by issuing new shares shortly after its IPO. This helped strengthen its balance sheet early on and gave the company the flexibility to invest in growth opportunities without taking on debt. Another reason equity has grown is through stock-based compensation to employees. While this does come with some dilution over time, it also aligns employee incentives with long-term company performance and contributes to equity in the short term. Importantly, the steady increase in equity means that Zoom has been able to build financial strength year after year. A growing equity base not only reflects value being created for shareholders, but also gives the company more room to invest in R&D, acquisitions, and product development without needing to rely heavily on external financing.

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 remained free cash flow positive every year since its IPO, and there are a few clear reasons why. First, Zoom’s business brings in more cash than it spends to keep operations running. Most of its revenue comes from subscriptions, which provide a steady and predictable stream of income. Even when growth slows, the company continues to generate healthy amounts of cash from its core activities. Second, Zoom is disciplined with its investments. It doesn’t spend heavily on buildings or physical infrastructure. Instead, it focuses on essential technology and cloud capacity to support its services. This careful approach allows it to retain more of the cash it brings in. Third, Zoom’s business model is inherently efficient. As a software company, it doesn’t need to spend much to deliver its services. By operating on cloud infrastructure rather than building and maintaining physical systems, Zoom keeps costs low and cash flow high. Zoom has maintained strong free cash flow margins over the years, consistently retaining a sizable portion of its revenue as free cash. This reflects not only the efficiency of its operations but also its ability to generate cash well beyond what is needed for day-to-day expenses and reinvestment. Zoom uses its free cash flow to buy back shares, although not yet in amounts large enough to fully offset share dilution from stock-based compensation. However, as the company continues to grow its free cash flow, we may begin to see a net reduction in outstanding shares in the future. The free cash flow yield is currently at its second-highest level since the IPO and suggests that the shares may be 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 had no debt since its IPO, which is a good sign. Having no debt gives Zoom greater financial flexibility. It means the company can fund its operations, invest in growth, and weather economic uncertainty without relying on borrowed money. This also reduces financial risk for shareholders and shows that Zoom has been able to grow while staying self-funded.

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Risks

Competition is a risk for Zoom. The company operates in a fast-moving and crowded market where both tech giants and newer companies are fighting for attention in communication and collaboration tools. Zoom’s biggest challenge comes from platforms like Microsoft 365 and Google Workspace, which include video conferencing as part of a larger bundle of tools, for no extra cost. This makes it harder for Zoom, which charges for its services separately, to stand out or compete on price, especially with large businesses. Zoom also faces pressure from older video meeting providers like Cisco Webex and GoTo, as well as from companies that offer internet-based phone systems, such as RingCentral and 8x8. In newer areas like customer support and call center software, Zoom is up against experienced players like Five9 and Genesys, who already have strong products and customer relationships. For smaller customers and consumers, companies like Apple, Amazon, and Meta (Facebook) offer alternatives that, while not always as full-featured, are often free and easy to use. Many of these competitors have advantages that Zoom does not: better name recognition, broader product lines, more money to spend on marketing, and deeper partnerships with hardware makers and other tech providers. As AI becomes more important in this space, Zoom also risks falling behind if larger rivals develop smarter features more quickly. Because Zoom is mostly focused on communication, while others offer full productivity platforms, it must keep innovating and delivering a better experience to justify its place. Without a clear long-term advantage to protect it from competitors, Zoom could face pressure on growth, pricing, and customer retention.

Macroeconomics is a risk for Zoom. Like many software companies, Zoom is influenced by broader economic trends that affect how much businesses are willing or able to spend on technology. In strong economic conditions, companies are more likely to invest in digital tools, expand usage, and sign longer contracts. But during periods of inflation, uncertainty, or economic slowdown, budgets often get tighter and spending on software is one of the first areas where cuts are made. While some customers may view Zoom as a cost-saving alternative to business travel, others may see it as a non-essential service, especially if they are under financial pressure. In these cases, Zoom can experience customer churn, slower renewals, and longer sales cycles. The company has noted that current conditions, including inflation and uncertainty in global markets, have already led to a reduction in demand from some users and may continue to do so if economic challenges persist. In addition to these economic risks, Zoom also faces potential challenges tied to geopolitical tensions. The company has a large number of engineers based in China, where labor costs are lower. This helps Zoom control expenses, but it also exposes the business to growing political and security concerns between the United States and China. Increased scrutiny or regulation from either government could disrupt Zoom’s research and development activities in the region. If Zoom were to face restrictions on its operations or staff in China, it could slow product development and affect the delivery of new features or services. In short, while Zoom’s platform remains valuable and widely used, the company is exposed to both economic and geopolitical risks that could affect demand, slow innovation, or create regulatory challenges in the years ahead.

Remote work trends are a risk for Zoom. Much of Zoom’s explosive growth during the pandemic was driven by the sudden global shift to remote work. As offices closed and travel halted, companies of all sizes turned to Zoom to keep business running. Video conferencing quickly became essential, and Zoom became a household name. Now, however, the trend is partially reversing. More companies and government agencies are asking employees to return to the office, at least part of the time. Organizations like JPMorgan, Amazon, AT&T, and many federal agencies have introduced mandatory return-to-office policies. This shift toward more in-person work could reduce the need for video collaboration tools, particularly for internal meetings that may now happen face to face. If this trend continues, Zoom could see slower growth in new users, fewer paid licenses, or even declining usage among existing customers. Zoom’s leadership remains optimistic, pointing out that hybrid work, where employees split time between home and the office, is becoming the new normal in many industries. In this environment, companies still need reliable video conferencing tools to connect remote team members, external partners, and international clients. However, hybrid work may lead to more moderate and predictable usage compared to the exceptional surge seen during the height of the pandemic. In other words, the long-term demand for Zoom is still there, but the total opportunity may be smaller than what investors became accustomed to in 2020 and 2021. There is also the question of engagement. As employees return to in-person meetings, Zoom may face reduced daily usage per user, which could impact upselling opportunities and the stickiness of its platform. A decrease in usage might not immediately translate into revenue loss, but over time, lower engagement can lead to customer loss or pricing pressure.

Reasons to invest

Artificial intelligence is a reason to invest in Zoom. Zoom has made major progress in becoming an AI first company, integrating AI deeply across its platform, including meetings, chat, phone, events, docs, and more. At the center of this transformation is Zoom AI Companion, which has seen rapid adoption and is already delivering real productivity benefits to customers. AI Companion has become a core part of the user experience for both small businesses and large enterprises. For smaller customers, it is included at no extra cost, making Zoom’s service more attractive and increasing customer retention. For larger organizations, Zoom is beginning to monetize AI through custom AI Companion features, which allow businesses to personalize their AI assistants, connect them to internal data, and integrate them into existing workflows. This opens up a new path for long term revenue growth. Zoom’s AI strategy stands out in several ways. Instead of relying on a single large model, the company combines its own AI technology with models from other leading providers like OpenAI, Anthropic, and Meta. This flexible setup allows Zoom to select the most effective tool for each task, which helps deliver high quality results while keeping costs under control. In addition, Zoom focuses on practical AI that solves everyday problems like summarizing meetings, finding information quickly, preparing for tasks, and simplifying communication. As a result, users are already experiencing real productivity gains, and adoption is growing rapidly. What sets Zoom apart is its ability to keep this powerful technology simple and accessible. It manages the complexity behind the scenes while offering a seamless experience for users. It also builds trust by providing core AI features transparently and without surprise price increases, which helps differentiate it from competitors.

Contact Center and Workvivo are reasons to invest in Zoom. Both represent important growth engines beyond Zoom’s core meetings business and highlight the company’s strategy to expand into adjacent markets with strong long-term demand. Zoom Contact Center is a cloud-based customer engagement solution that is gaining rapid traction, especially among large enterprises. The platform enables businesses to modernize their legacy, on-premise call centers with a more flexible and integrated cloud experience. In recent quarters, Zoom has won several major contracts, including its largest ever deal with a Fortune 100 tech company, covering over 15.000 agents. This kind of customer win not only signals strong enterprise adoption but also shows that Zoom is capable of competing head-to-head with well-established contact center providers. The number of Contact Center customers generating over $100.000 in annual recurring revenue has more than doubled year-over-year. Many of these new deals involve replacing older systems or even existing cloud-based vendors, showing that Zoom’s product is resonating due to its scalability, integration with Zoom Phone, and ease of deployment. Workvivo is Zoom’s platform for helping companies improve how they communicate and connect with their employees. It’s designed to boost engagement and support a strong company culture. Since Zoom acquired it, Workvivo has grown quickly, more than doubling its number of customers in the past year. A big part of this momentum comes from being the top choice for companies that used to rely on Meta’s Workplace platform, which is now shutting down. Many of those businesses are switching to Workvivo as their new internal communication tool. What makes Workvivo especially strategic is that 90% of its customers are new to Zoom. This gives Zoom a powerful entry point into new organizations, allowing it to showcase the broader Zoom platform and expand relationships over time. It also adds another revenue stream tied to the employee experience, a growing area of focus for many HR and communications teams.

Zoom Workplace is a reason to invest in Zoom because it represents the company’s broader strategy to evolve from a single-product video platform into a complete, integrated suite of communication and productivity tools for the modern workplace. Zoom Workplace brings together core services like Zoom Meetings, Phone, Team Chat, Mail and Calendar, Whiteboard, Docs, and Clips into a unified platform. These tools are tightly integrated to help teams communicate, collaborate, and manage tasks across different formats. This approach increases the stickiness of Zoom’s offering and encourages customers to adopt more of the platform over time. Zoom Meetings, the foundation of the platform, remains one of the most widely used and reliable video conferencing tools, known for its simplicity, flexibility, and high-quality video. But Zoom has gone far beyond meetings. Zoom Phone continues to grow strongly, with businesses increasingly switching from outdated on-premise systems to Zoom’s cloud-based solution. Its flexibility, international coverage, and integration with tools like Microsoft Teams make it attractive to both large and small enterprises. Zoom Team Chat, often included at no extra cost in existing plans, is gaining attention as companies look for alternatives to Slack or Microsoft Teams. Recent updates have improved usability, and it now acts as a central hub for communication across the Zoom suite. Similarly, newer tools like Zoom Docs and Zoom Whiteboard are expanding Zoom’s role in content creation, brainstorming, and day-to-day project collaboration. The strong growth in Docs usage suggests users are beginning to see Zoom as more than just a meeting tool. Finally, Zoom’s focus on constant improvement is helping it stay competitive. The company keeps adding useful new features, such as tools that let users build automated workflows without needing to code. It is also making its platform work better with popular tools from Microsoft, Google, Salesforce, and others. These efforts make Zoom a bigger part of customers’ everyday work, which helps keep them loyal and creates more chances to sell them additional Zoom products.

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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 3,21, which is from fiscal 2024. 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 $27,41. 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 $13,70 (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 1.945, and capital expenditures were 137. 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 96 in our calculations. The tax provision was 305. We have 306,5 outstanding shares. Hence, the calculation will be as follows: (1.945 – 96 + 305) / 306,5 x 10 = $70,28 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 $5,90 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $67,78.

Conclusion

I believe that Zoom is an intriguing company with capable management. It has built a moat through strong brand recognition, an easy to use platform, and a growing suite of integrated communication tools. While the company has delivered an underwhelming return on invested capital in most years, this could improve over time as it benefits from leaner operations, margin expansion, and disciplined capital allocation. The company delivered a record high free cash flow in fiscal year 2025 and has consistently delivered a high levered free cash flow margin, and the company has no debt. That said, Zoom operates in a crowded and fast-moving market where competitors like Microsoft and Google bundle video tools into broader productivity suites, often at little or no extra cost. With fewer built-in advantages and no entrenched moat, Zoom must continually innovate to stay relevant. Macroeconomic conditions also present risks. Slowdowns, inflation, or tighter budgets can lead businesses to cut back on software spending, delay renewals, or reduce usage. In addition, geopolitical tensions, particularly with China where Zoom employs many engineers, could disrupt operations or product development if political or regulatory pressures escalate. Remote work trends are another factor. While hybrid work appears to be a lasting shift, the broader return to offices has reduced overall reliance on video conferencing, potentially limiting growth in user engagement and paid licenses over time. Artificial intelligence is a reason to invest in Zoom. The company has integrated practical AI tools across its platform, driving user adoption and productivity gains. Its flexible model architecture, combining proprietary and third party tools, delivers value at scale and opens up new monetization opportunities. Contact Center and Workvivo are also compelling growth drivers. Contact Center is winning large enterprise deals as companies replace legacy systems, while Workvivo is growing quickly and helping Zoom enter new customer relationships, expanding cross-sell potential. Zoom Workplace shows the company’s transformation from a single-product app into a broader productivity platform that combines meetings, phone, chat, email, document creation, and collaboration tools. This integrated approach improves customer stickiness and deepens Zoom’s role in day to day work. While there are many things to like about Zoom, I think there are too many uncertainties. Hence, I will not be investing in Zoom at this time.

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