Zoom: A Mildly Interesting Case Study

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The current situation regarding Software-as-a-Service (SaaS) companies is, shall we say, delicately poised. There’s a distinct air of existential dread hanging over them, fuelled by the rapidly advancing field of generative artificial intelligence (AI). The fear, apparently, is that these digital entities might… well, replace the entities that created them. It’s a bit like the robots finally deciding they’ve had enough of calculating spreadsheets and wanting to open a tea shop instead. (Though, one suspects the tea would be algorithmically optimized for maximum enjoyment, which might be… unsettling.) If a company so much as hints that competition is causing a ripple in the vast ocean of quarterly earnings, its stock price tends to perform a rather dramatic impression of a falling brick.

Zoom Communications (ZM 1.54%), a purveyor of digital meeting spaces, recently experienced this phenomenon. The fourth-quarter earnings results, you see, weren’t quite as spectacularly upward-trending as some analysts had hoped. Non-GAAP earnings per share (EPS) landed at $1.44, a fraction below the anticipated $1.49. (A difference, in the grand scheme of cosmological events, roughly equivalent to the width of a single atom, but apparently significant to those who track such things.) Furthermore, the fiscal 2027 outlook was, shall we say, modestly less optimistic than expected – off by about 4.5%.

This triggered a stock price correction – a polite term for a tumble – of up to 15% in the days following the announcement. However, for those of a patient disposition, this might present an… opportunity. (A word best used with caution, as it often implies a hidden, possibly existential, risk.)

How Vulnerable Is Zoom?

Zoom, it must be said, has done a remarkably good job of navigating the choppy waters of competition thus far. The arrival of new AI services isn’t likely to cause the entire edifice to collapse. Microsoft Teams, backed by the considerable resources of one of the world’s largest enterprise software providers, continues to loom large, naturally. Yet Zoom persists in showing steady growth among enterprise customers, and even faster growth among those larger, more complex enterprises. (One imagines them having a great many meetings.)

This growth, in the face of determined competition, suggests the existence of a ‘network effect’. Both parties, you see, require a Zoom account for the software to function. It’s a sort of digital dependency. As more people join the Zoom ecosystem, the more valuable it becomes, creating a sort of moat around the business. (Not a literal moat, of course. That would be impractical. Though a digital moat, perhaps constructed from firewalls and encryption, is a distinct possibility.)

Zoom, rather cleverly, leveraged its excellent positioning at the start of the COVID-19 pandemic to expand its business and explore new opportunities. Its product range has expanded to include cloud-based phone systems, workplace productivity platforms, and contact-center software. (A rather impressive feat of digital diversification, if you consider the sheer improbability of it all.)

That said, the company isn’t ignoring the potential impact of artificial intelligence. It’s investing heavily in integrating generative-AI capabilities across its services. Its AI Companion 3.0, released last year, is able to gather insights from meetings, help plan next actions, and even complete some simple tasks for users. (One shudders to think what tasks those might be. Perhaps filing expense reports. Or composing passive-aggressive emails.)

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Zoom’s Stock is Reasonably Priced, Given the… Everything

Zoom’s investment in AI capabilities appears to be bearing fruit, as revenue continues to rise, even if it’s slightly weighing on earnings. But the company has a considerable amount of cash on hand and generates substantial free cash flow every quarter. (A reassuring sight in a world increasingly powered by digital abstractions.)

It ended 2025 with approximately $7.8 billion in cash and securities on the balance sheet, after generating $1.8 billion for the year. Management has effectively used this cash to buy back shares while continuing to invest in its products. It has $1 billion remaining in its current repurchase authorization. (A sensible strategy, one might argue, in a universe governed by the laws of supply and demand.)

Following the post-earnings correction, Zoom stock trades for just 13 times management’s adjusted earnings-per-share outlook. That outlook doesn’t include the potential impact of share repurchases, so the stock’s upside is even greater. Given Zoom’s steady growth and proven resilience in the face of competition, investors should be more than willing to consider acquiring shares at the current price. (Though, of course, past performance is no guarantee of future results. The universe, after all, is a fundamentally unpredictable place.)

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2026-03-13 14:22