The demand for video conferencing is skyrocketing, driven by the rise of remote work, advancements in cloud technology, and the need for scalable communication tools as companies navigate post-pandemic challenges and increased competition in the digital landscape.
Therefore, investors should consider strong video conferencing stocks like Zoom Video Communications, Inc. (ZM) and RingCentral, Inc. (RNG) as must-buys.
In today’s work environment, video conferencing enables companies to cut travel and overhead costs, making it especially valuable amid economic challenges such as rising utility prices. With advancements in 5G and fiber optics ensuring reliable connectivity for remote work, the video conferencing market is projected to reach $25 billion by 2032, reflecting a strong CAGR of 11.6% from 2024 to 2032.
Furthermore, these trends underscore the market's optimistic future, with rising investments in IT services and enterprise software leading to advanced video conferencing technologies like desktop IP conferencing, HD in-room systems, and immersive telepresence. Hence, Statista predicts that global IT spending is expected to reach a staggering $5.30 trillion this year.
Given the favorable trends in this sector, which indicate promising investment opportunities, let’s closely examine the fundamentals of the mentioned video conferencing stocks.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, Zoom Conference Room Connector, Zoom Events, OnZoom, and Zoom Webinars.
On September 24, 2024, ZM announced new advanced enterprise offerings designed to enhance efficiency, security, and compliance for organizations, including features like Zoom Compliance Manager Plus and Zoom Meeting Survivability. These additions aim to address the complex needs of enterprises, ensuring reliable communication and collaboration while meeting regulatory obligations.
On September 18, 2024, Zoom and Mitel announced a strategic partnership to create a unique hybrid communications solution that integrates Zoom Workplace and AI Companion with Mitel's communications platform, enabling a seamless experience for enterprises. This collaboration aims to enhance flexibility and productivity while allowing Mitel customers to transition to ZM’s UCaaS offerings on their terms.
In terms of the trailing-12-month EBIT margin, ZM’s 18.60% is 86.7% higher than the 9.97% industry average. Similarly, its 41.04% trailing-12-month levered FCF margin is 298.7% higher than the 10.30% industry average. Also, its 8.33% trailing-12-month Return on Total Assets is 297.7% higher than the 2.09% industry average.
ZM’s revenues for the second quarter, which ended on July 31, 2024, increased 2.1% year-over-year to $1.16 billion. Similarly, its gross profit rose marginally over the prior-year quarter to $877.43 million.
For the same quarter, the company’s non-GAAP income from operations stood at $455.54 million. In addition, the company’s non-GAAP net income was $436.42 million, or $1.39 per share, up 6.6% and 3.7% from the prior year’s quarter, respectively.
Street expects ZM’s revenue for the quarter ending October 31, 2024, to increase 2.4% year-over-year to $1.16 billion. Its EPS for the same quarter is expected to rise 1.4% year-over-year to $1.31. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 19.1% to close the last trading session at $69.61.
ZM’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 75 stocks in the Technology - Services industry. It has a B grade for Value and Quality. Click here to see ZM’s ratings for Growth, Momentum, Stability, and Sentiment.
RingCentral, Inc. (RNG)
RingCentral, along with its subsidiaries, provides cloud communications, video meetings, collaboration, and contact center software-as-a-service solutions worldwide. The company's products include RingCentral Message Video Phone, RingCentral Contact Center, RingCX, RingCentral Video, and RingCentral Professional Services, serving various industries.
On September 9, 2024, RNG announced a strategic partnership with Zayo to launch Zayo UC+, integrating RNG’s AI-powered RingEX and RingCX solutions. This offering aims to enhance cloud-based communication and customer experience for businesses.
On August 21, 2024, RNG announced new AI-powered features for its RingCX contact center solution, including real-time agent and supervisor assist, coaching insights, and a bring-your-own Intelligent Virtual Agent framework, aimed at enhancing customer experience and productivity. These innovations respond to strong customer demand for improved AI capabilities in contact centers.
In terms of the trailing-12-month gross profit margin, RNG’s 70.24% is 40.9% higher than the 49.85% industry average. Likewise, its 24.68% trailing-12-month levered FCF margin is 139.8% higher than the 10.30% industry average. Furthermore, its 1.22x trailing-12-month asset turnover ratio is 95.9% higher than the 0.62x industry average.
RNG’s total revenues for the second quarter ended June 30, 2024, increased 93.9% year-over-year to $592.91 million. Its non-GAAP income from operations rose 18.9% from the year-ago value to $124.19 million. Moreover, the company’s non-GAAP net income of $86.20 million reflects growth of 7.7% compared to the same quarter last year.
Analysts expect RNG’s EPS and revenue for the quarter ending September 30, 2024, to increase 18.2% and 7.9% year-over-year to $0.92 and $602.14 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 13.8% to close the last trading session at $31.61.
RNG’s POWR Ratings reflect its bright outlook. It has an overall rating of B, which translates to a Buy in our proprietary system.
It is ranked #8 out of 39 stocks in the B-rated Software - Business industry. It has an A grade for Growth and Value and a B for Quality. Click here to access additional ratings for RNG’s Momentum, Stability, and Sentiment ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ZM shares were trading at $69.46 per share on Monday afternoon, down $0.09 (-0.13%). Year-to-date, ZM has declined -3.41%, versus a 21.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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