Zoom Video Communications, Inc. (NASDAQ: ZM) was founded in 2011 by Eric Yuan, a former Cisco (NASDAQ: CSCO) engineer, as an answer to his dream of avoiding a ten-hour commute to see his then-girlfriend in China. The company has enjoyed an incredible performance so far this year, its stock price surging more than 200% by mid-June. Zoom gained popularity so quickly that it soon became a verb like Facebook (NASDAQ: FB) and Netflix (NASDAQ: NFLX); but just as quickly, it became mired in trouble when it was exposed to have serious security vulnerabilities.
So, is Zoom a good investment?
The bull case for Zoom
Even before going public in March of 2019, Zoom was a profitable tech unicorn that was founded to develop a reliable, cloud-native, easy-to-use conferencing system. It has seen its revenue grow over 312% (to $623 million) from 2018 to 2020 and is projecting revenue between $1.78 billion and $1.8 billion for fiscal 2021, nearly double of what was originally predicted in March, thanks to the pandemic. The COVID-19 outbreak has forced corporations to beta-test their work-from-home capabilities and when things finally settle down, Zoom will still be there to serve as the go-to app for conferences and collaborations.
Additionally, companies will realize the cost-effectiveness and benefits of a remote workforce including lower real-estate and electricity expenditures, increased productivity, easier access to top talent via global reach, and increased wellness from social distancing. Zoom has a 43% market share and the extraordinary demand for its service has forced the company to boost its capabilities with the likes of Amazon (NASDAQ: AMZN) Web Services and other third-party cloud providers. Users who switched from other providers reported an increase in performance, trust, and engagement so it’s little wonder that the company boasts 60% of the Fortune 500 and 96% of the top 200 U.S. universities as clients.
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The bear case for Zoom
Just as Zoom became a verb for holding a meeting, the world was introduced to a new verb: ‘Zoombombing’ — when unauthorized participants join your meeting. This is okay for a virtual happy-hour or maybe even a lecture but quite problematic in a corporate, medical, or government setting. The problems didn’t stop there, as it was discovered that the company had many of its meetings routed through servers in China; a country that can see anything happening on its servers without a warrant. It was also revealed that Zoom didn’t have true end-to-end AES-256 encryption but instead used a weaker in-house security algorithm.
Moreover, recorded meetings stored on the cloud were available for viewing by anyone; these included highly sensitive corporate sessions and telehealth visits. After these discoveries, the service was banned by corporations like Ericsson (NASDAQ: ERIC), Bank of America (NYSE: BAC), Tesla (NASDAQ: TSLA), and the New York City Board of Education. There is also concern that most of Zoom’s users are taking advantage of its free tier and costing the company money by forcing it to boost its capacity while not offering anything in the way of revenue.
So, is Zoom a good investment?
Yes. Zoom, like its competitors, will have security flaws and be susceptible to hackers but it fixed most of them in version 5.0 of its software, prompting the NYC Board of Education to overturn its ban; it also acquired Keybase, a company specializing in end-to-end encryption to boost its security. Zoom, with its best quarter in enterprise software history, is also the best product available as it is fully cloud-native, was designed by a former Webex developer who believes in full transparency, and has had massive exposure from the pandemic.
It currently does not.
Unknown but in March, it reached 300 million active daily participants.
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Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.