If you ever wanted a share price chart to show the full impact of the pandemic, look no further than Zoom Video Communications (NASDAQ:ZM).
The rise during the pandemic (as we all adopted the platform) was followed by the 66% drop in the past year as we’ve come out the other side. But now that Zoom shares have erased a lot of those gains, is it worth me buying?
The rise and fall
At the end of February 2020, Zoom shares traded at $105. By October that year, the share price was comfortably above $500. The company had gone from being a modest player in the video conferencing space to suddenly being the platform of choice for everyone. The broad appeal and ease of use meant that we used it for personal interactions, business meetings, and everything in-between.
Since last summer, the picture changed. Easing of restrictions in many places around the world meant that reliance on Zoom waned. This can be seen in Zoom shares, with that 66% drop meaning it now trades back at $110, having lost all of those pandemic gains.
I didn’t invest in Zoom during the pandemic. So the question is does in now make sense to buy some shares given that I’m not paying for any pandemic premium?
Why Zoom shares are appealing
Even though we moved out of the pandemic slowly in 2021, the full-year results for Zoom still showed strong growth. Revenue increased 55% to $4.1bn from 2020, with the operating margin at a generous 25.9%.
Importantly, the business is also developing the platform to make sure it doesn’t get left behind. For example, it has launched Zoom Events and Zoom Whiteboard, both of which should help retain users beyond simply videoconferencing.
Finally, I think Zoom shares are appealing due to the engrained nature of users. Many still have hybrid work environments, meaning that video conferencing is required. Given that there’s still uncertainty in the world about the future of Covid-19, I would expect many companies are paying to extend Zoom licenses.
Points to be aware of
One point I must flag with Zoom shares is that the current price can be seen as the fair value. Having a vision of buying to target $500 I think is simply unrealistic. It was buoyed by speculative buyers, and those worried about how bad the pandemic might get.
Now that it’s back at $110, the price-to-earnings ratio is just over 25. This could be perceived as the right value, with any upside limited. If results start to fall off in coming quarters, there’s no reason why it can’t head lower.
Overall, I do think Zoom shares are a lot more attractive to consider buying now that the pandemic premium has been removed. On that basis, I’m seriously thinking about buying.