Zoom Video Communications (ZM) – Get Zoom Video Communications Inc. Report was a big winner during the early part of the covid pandemic.
Shares of the video conferencing company shot higher through 2020 as office workers hunkered down at home and started holding all their meetings online.
But those heady days are long gone, as shares of the company have steadily retreated from their pandemic highs close to $500, to trade now just above $100 each.
But that 80% slide doesn’t have Ark Investment Manager Cathie Wood or her team worried. In fact, her open-source research shop came out recently with some eye-popping expectations for Zoom over the next four years.
Wood and her team identify four key factors that play into their valuation model for Zoom.
The first is the growing percentage of knowledge workers around the world who will be working remotely full or part time. While many companies have begun requiring employees to return to the office, “we believe that knowledge worker backlash and talent shortages will compel employers to adopt more flexible arrangements,” Ark’s report said.
“In our mean projection, we expect 75% of all global knowledge workers to participate in such arrangements, up from 51% in 2021.” The number of such knowledge workers outside of China is expected to grow to 832 million in 2026 from 489 million currently.
Zoom’s share of that market is the second of the four key factors considered.
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“Our model estimates that Zoom’s market penetration increased from 8% in 2019 to 45% during the onset of the pandemic in 2020, and then slipped back to 43% during the reopening in 2021,” the Ark team wrote.
Ark expects Zoom to continue to lose share to other competitors going forward, but given the surge in the overall market, the company’s business will still grow substantially. It said its mean projections call for total unique Zoom users to rise from 212 million currently to 291 million by 2026.
Third Factor: Users Pay
The third valuation factor is what percentage of Zoom users are actually paying for services. In Ark’s model, the mean expectation is that 50% of the user base will be generating revenue. “In other words, by 2026, at least one party in any Zoom call will be a paying user with enhanced Zoom functionality. The downside and upside forecasts are 20% and 80%.”
The Key: Revenue Per User
The fourth factor in the forecast is what the average revenue per user will be. In this case, two services are key, according to Ark. The first is Zoom’s core video conferencing, phone and chat services. The second is products and services that are enhanced by artificial intelligence.
“AI-powered analytics should increase productivity across knowledge workers substantially. In our mean projection, the average paying user will spend $94, or 50% of the total cost of Zoom’s core products, on Zoom IQ and AI-related products and services.”
Given those arguments and forecasts, where does Cathie Wood and the Ark research team see Zoom shares in 2026?
“Ark’s “price target for Zoom is $1,500 per share in 2026,” according to the report. Of course, there’s a wide window of possibilities. “Our bear and bull cases suggest that Zoom could be worth ~$700 and ~$2,000 per share in 2026, respectively.”
So even the worst-case scenario for the stock has it going up nearly 7 times from where it is now, and 40% above its pandemic high.