During the COVID-19 pandemic, Zoom Video Communications' (NASDAQ:ZM) video-and-voice teleconferencing platform became a global sensation after meeting the needs of stay-at-home employees like no other company.
Now, with the pandemic predominantly over, investors have abandoned the stock, sending its shares down 46% so far this year. However, the path ahead of the company looks much smoother than its stock performance suggests.
Last week, Zoom delivered highly encouraging first-quarter results, with total revenue rising to $1.07 billion, up 12% year-over-year. Further, free cash flow rose 10% to an impressive $501 million despite this being a historically tough time to make year-over-year comparisons.
More disappointingly, however, the company's non-GAAP net income per share was $1.03, down from $1.32 per share, while GAAP profits were cut in half to $0.37 per share.
Though investors may be dissatisfied with the decline in profitability, on the bottom line, earnings that came in 18% above consensus estimates of $1.03 per share got everyone's attention.
Since 2021, Zoom has likely lost many small accounts but made up for it by signing big enterprises and offering new product lines designed to support "hybrid" office work and other functions.
Zoom also recently announced its acquisition of Solvvy and added its scalable self-service and conversational AI technologies to the newly-launched Contact Center.
With the company's new diversified portfolio beyond its videoconferencing platform, including chat rooms and more-comprehensive collaboration spaces, Zoom has managed the transition back to office work well.
Returning to Zoom's free cash flow, analysts who follow Zoom are currently projecting the company will generate $1.5 billion this year, according to data from S&P Global Market Intelligence.
Assuming that's how things turn out, Zoom stock is currently trading for an enterprise value-to-free cash flow of only 17.6, making the stock reasonably well priced and a good time to buy.
PRICE ACTION: Last week, high-profile investor Cathie Wood's investment management firm ARK Invest purchased just over 19,000 Zoom shares. The stock rose nearly 2% to $113.40 in premarket trading Tuesday.
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