- Investors may be wondering if Zoom Communications at US$84.02 is offering good value right now, or if the easy money has already been made.
- The stock has returned 4.5% over the last 7 days, 8.4% over 30 days, 0.8% year to date and 26.0% over the past year. The 3 year return sits at 20.0%, while the 5 year return reflects a 75.5% decline.
- Recent coverage has focused on Zoom's role as a core communications platform and how investors are reassessing long term expectations after the sharp 5 year pullback. This broader context is helping shape how the latest 1 year and shorter term moves are being interpreted.
- On Simply Wall St's valuation checks, Zoom Communications currently holds a 4 out of 6 valuation score. The next sections will walk through what that means across different valuation methods before wrapping up with a more complete way to think about value.
Approach 1: Zoom Communications Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a business might be worth by projecting its future cash flows and discounting them back to today using a required return. It is essentially asking what all future cash flows are worth in present terms.
For Zoom Communications, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections out to 2035. The latest twelve month Free Cash Flow sits at about $1.87b. Analyst estimates and subsequent extrapolations by Simply Wall St place projected Free Cash Flow around $1.99b in 2035, with interim annual projections generally in the $1.7b to $2.0b range.
By discounting these projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of about $104.72 per share. Against the recent share price of US$84.02, this implies the stock is 19.8% undervalued on this method.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Zoom Communications is undervalued by 19.8%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.
Approach 2: Zoom Communications Price vs Earnings
For a profitable business like Zoom Communications, the P/E ratio is a useful way to think about value because it links what you pay directly to the earnings the company is already generating. In general, higher growth expectations and lower perceived risk tend to support a higher "normal" P/E, while slower growth and higher risk usually justify a lower one.
Zoom Communications is currently trading on a P/E of 13.0x. That sits well below both the Software industry average P/E of about 30.1x and the broader peer group average of 35.7x. On the surface, that gap suggests the market is pricing Zoom Communications at a discount to many software peers.
Simply Wall St’s Fair Ratio for Zoom Communications is 20.7x. This is a proprietary estimate of what a reasonable P/E could be, after accounting for factors such as earnings growth, profit margins, industry, market capitalization and company specific risks. Because it adjusts for these elements, the Fair Ratio is a more tailored yardstick than a simple comparison with industry or peer averages. Comparing the Fair Ratio of 20.7x with the current P/E of 13.0x indicates the shares are trading below this modelled level.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Zoom Communications Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced, where you attach a clear story about Zoom Communications to specific assumptions for future revenue, earnings, margins and fair value, then compare that fair value with the current price to decide whether the stock looks attractive or expensive based on your own view.
On Simply Wall St's Community page you can use Narratives as a simple tool that links Zoom Communications qualitative story to a full financial forecast that updates automatically when news, earnings or guidance change, so your fair value view stays aligned with the latest information without you having to rebuild a model each time.
For example, one Zoom Communications Narrative might lean toward the higher fair value of about US$115.0, based on expectations such as revenue of US$5.8b, earnings of US$1.5b, a 26.7% profit margin and a P/E of 25.9x in 2029. In contrast, a more cautious Narrative might sit closer to US$66.0, using lower earnings assumptions and a different view on Zoom Communications long term growth and profitability.
For Zoom Communications however, we will make it really easy for you with previews of two leading Zoom Communications Narratives:
🐂 Zoom Communications Bull Case
Fair value used in this Narrative: US$97.33 per share.
Gap between this fair value and the last close of US$84.02: about 13.6% below the Narrative fair value.
Revenue growth assumption: 3.9% a year.
- Analysts in this camp expect steady revenue growth supported by AI features such as AI Companion, Virtual Agent 2.0 and Contact Center Elite, alongside broader adoption of unified communications across large enterprises.
- The Narrative leans on low churn, growing large customer contracts and solid free cash flow, combined with ongoing share buybacks, as support for earnings and flexibility to invest in new products.
- It assumes the market is willing to pay a P/E of about 24.7x earnings by 2029, with revenue of US$5.5b and earnings of US$1.4b. It also highlights competition, AI monetization uncertainty and enterprise IT consolidation as key risks to watch.
🐻 Zoom Communications Bear Case
Fair value used in this Narrative: about US$72.95 per share.
Gap between this fair value and the last close of US$84.02: about 13.2% above the Narrative fair value.
Revenue growth assumption: about 3.3% a year.
- This Narrative focuses on slower revenue growth, margin pressure and tougher competition from larger ecosystems such as Microsoft Teams and Google Workspace, along with the risk that communications tools become more commoditised over time.
- It builds in lower profit margins over the next few years, higher regulatory and cybersecurity related costs and the possibility that Zoom finds it harder to deepen penetration with large enterprise customers.
- At the same time, it acknowledges that stronger than expected AI adoption, growth in products such as Zoom Phone, Contact Center and Workvivo and continued strong cash generation could all work against this more cautious view.
If you want to line these views up against your own expectations for revenue, margins and what feels like a reasonable P/E, the Narratives tool lets you adjust the inputs and see how your fair value compares to the current price and to other investors' assumptions.
To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Zoom Communications on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.
Do you think there's more to the story for Zoom Communications? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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