Jun 15, 2022
Zoom Video Communications (ZM) was one of the hottest stocks during the early days of the pandemic — but not anymore.
Shares have plunged 38% year to date. Over the last 12 months, they’re down a painful 68%.
Advertisement
But Cathie Wood’s Ark Invest sees a glorious revival in the not-too-distant future.
Thanks for subscribing!
Read the best of Moneywise in 5 minutes or less.
By signing up, you accept Moneywise Terms of Use, Subscription Agreement, and Privacy Policy.
“According to ARK’s open-source research and model, Zoom’s share price could approach $1,500, compounding at a 76% annual growth rate, in 2026,” Wood’s team wrote in a research report last week.
Considering that Zoom shares trade at $113 apiece right now, the projection implies a potential upside of 1,227%.
More: “What’s Cathie Wood’s net worth?”
Hybrid work is here to stay
When meetings and classes moved online due to the pandemic, Zoom’s business flourished.
But as the economy reopened and employees started going back to the office, there have been concerns about the growth potential of this video communications company.
Ark Invest, however, doesn’t see the hybrid work environment going away.
“Although a perceived decline in the severity of COVID-19 influenced many firms to reopen offices and reinstate 100% in-office mandates, which lowered the penetration of hybrid/remote working models to 66%, we believe that knowledge worker backlash and talent shortages will compel employers to adopt more flexible arrangements.”
Advertisement
Ark Invest predicts that by 2026, 75% of all global knowledge workers will participate in hybrid/remote working models, up from 51% in 2021.
Must Read
- The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100
- Here’s the average income of Americans by age in 2026. Are you keeping up or falling behind?
- Insurance companies profit most from drivers who auto-renew without shopping around. Comparing 100+ quotes takes 2 minutes and costs nothing
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Zoom’s opportunity
As one of the leading providers of video communications software, Zoom is solidly positioned for this trend.
Ark Invest’s mean projection suggests that the number of Zoom users will grow at a compound annual rate of 7%, from 212 million to 291 million by 2026. At the same time, the firm sees substantial improvement in Zoom’s ability to monetize its user base.
“Our mean projection assumes that the majority of Zoom’s users are enterprise customers, and that 50% of the total Zoom user base is paying by 2026.”
That $1,500 figure is the expected value of Zoom stock based on Ark’s simulations, but it’s not the only number worth noting. Ark Invest also provided bull and bear scenarios for the company.
Based on Ark’s Monte Carlo analysis, there is a 25% probability that Zoom could be worth $700 per share or less and a 25% probability that it could be worth $2,000 per share or more in 2026.
Advertisement
Considering where Zoom shares are trading at right now, even the bearish scenario implies plenty of upside ahead.
Not the only bull on the street
Ark Invest’s bullish call on Zoom is reflected in its holdings.
At the time of this writing, Zoom is the largest holding at Ark’s flagship fund Ark Innovation ETF (ARKK), accounting for 10.2% of the fund’s weight. It’s also the No. 1 holding at Ark Next Generation Internet ETF (ARKW) with an 8.7% weighting.
But Ark Invest isn’t the only firm that sees potential in the company.
Last month, Morgan Stanley analyst Meta Marshall reiterated an “overweight” rating on Zoom, saying that Zoom is “a name where investors need to search hard for a reason to not own it.” Marshall’s price target of $140 is about 24% above where the stock sits today.
Meanwhile, RBC Capital Markets analyst Rishi Jaluria has an “outperform” rating on Zoom and a price target of $150.
You May Also Like
- JP Morgan sees gold hitting $6,000/oz before 2027 — and a Gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
