Zoom Stock Outperformed the Market Over the Last Year. Time To Buy?
Key Points
Zoom Video Communications (NASDAQ: ZM) has struggled in recent years. Interest in the pandemic darling waned as people returned to offline activities. Moreover, numerous competing platforms have emerged, leading investors to question how much of a competitive moat the company can claim.
Nonetheless, Zoom is still the leading online meeting platform. Also, even though the stock trades at a small fraction of its 2020 high, it outperformed the S&P 500 over the past year. The question for investors is whether such conditions present an opportunity or if they are better off staying away from this stock.
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Where Zoom stands
In many respects, Zoom has continued to benefit from the legacy of the pandemic. Many workers never returned to the office, meaning that online meeting technology is still essential.
Additionally, Zoom remains the dominant online meeting platform. According to Wall Street Zen, it claims a 57% market share. This is well ahead of the second-largest platform, Microsoft‘s Teams, at 25%. Other competitors, such as Alphabet‘s Google Teams and Webex from Cisco Systems, each claim a 6% market share.
Unfortunately, for Zoom shareholders, it may not experience the growth they might want. Grand View Research forecasts the global video conferencing market will expand at a compound annual growth rate (CAGR) of 8% through 2033. That means the market size, which is around $12 billion now, would grow to $24 billion over the next eight years.
That may leave investors questioning how much more Zoom can grow. At a market cap of around $23 billion, its size nearly matches the estimated size of the video conferencing market.
In Zoom’s defense, the company is more than online meetings. With its phone, chat, and AI capabilities, it is a communications ecosystem. Still, since its competitors also offer comparable capabilities, investors may question how much that will help the stock long-term.
Zoom’s financials
The financial state of Zoom seems to confirm its bleak outlook. In the first quarter of fiscal 2026 (ended April 30), the company reported just under $1.2 billion in revenue, a yearly gain of less than 3%. This means it underperforms the aforementioned industry CAGR, and since revenue also grew by around 3% in fiscal 2025, this slow growth is not a one-time occurrence.
The profit picture looks slightly more favorable. The company reduced operating expenses in fiscal Q1, meaning its $255 million in net income rose by 18% compared to year-ago levels. Still, since net income grew by 59% in fiscal 2025, profit growth has slowed significantly.
Likewise, Zoom’s fiscal 2026 revenue estimate is between $4.80 billion and $4.81 billion. This amounts to a 3% increase, leaving its revenue growth consistent but modest.
Admittedly, that did not stop Zoom stock from outperforming the S&P 500, rising by more than 20% over the last year. Also, the stock sells for a P/E ratio of 22. When also factoring in the forward P/E ratio of 13, one might assume the valuation factors in the company’s challenges. Still, this forces investors to decide whether that makes it cheap enough to buy or whether investors are better off staying away from Zoom stock.
Should I buy Zoom stock?
Given the current state of Zoom Video Communications, investors have little reason to choose it over the S&P 500.
Indeed, the pandemic has built long-term credibility for the company, as workers and consumers continue to rely on its platform, and its dominant market share bodes well for the company.
Unfortunately, this industry is probably too small and slow-growing for investors to earn outsized profits in the long term. Industry growth is likely to stay in the single digits, and even with its valuation headed to low levels, the company’s modest revenue growth is unlikely to attract widespread investor interest.
Thus, even if workers and consumers continue to turn to Zoom, the stock is not on track to deliver outsized gains for its shareholders.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Cisco Systems, Microsoft, and Zoom Communications. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.