Zoom was a top tech stock in 2020 but what’s in store for 2021?

Zoom was a top tech stock in 2020 but what’s in store for 2021?
Written by:
Jayson Derrick
November 29, 2020
  • Zoom's stock is among the top tech performers in 2020.
  • The company's video communication platform became an essential tool nearly overnight.
  • Investors and analysts are starting to model what is next as vaccines become available.

As 2020 comes to a close, Zoom Video Communications Inc (NASDAQ: ZM) has already earned the title of one of the hottest tech stocks. The video communication company has seen demand surge nearly overnight as COVID-19 lockdowns forced companies to introduce new technologies so workers can communicate with each other.

But a vaccine against the novel coronavirus implies a return to some form of normalcy in the back half of 2021. As such, investors are wondering if Zoom’s exponential growth in 2020 will come to a sudden halt.

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700% stock gain in 2020

Zoom’s stock is up a mind-boggling seven-fold in 2020 as the company transitioned from a fast-growing and niche tech company to a must-have product for both students and workers, according to CNBC.

The company’s sudden growth in March carried over throughout the year with no signs of slowing down. The company is scheduled to report third quarter results on Monday and analysts are expecting revenue to grow 317% year-over-year to $694 million. Even looking forward to the January-ending quarter, Zoom’s revenue growth rate is modeled to grow 288%, followed by 116% in the subsequent quarter, according to CNBC.

Here is a summary of Zoom’s second quarter earnings report and its first quarter report.

Analyst: the ‘wow’ factor coming to an end

Wall Street research firm Elazar Advisors said in November that Zoom benefited from a “wow” factor but the inevitable vaccine release means “there’s going to be perceptual headwinds” for the stock, according to CNBC.

Naturally, Zoom’s value proposition and sense of urgency will come to an end. There may not be much the company can even do after a 700% surge to keep investors happy. In addition, much larger tech giants like Microsoft and Google heavily invested in their video conferencing technologies to steal market share away from Zoom.

Not the end to Zoom

Zoom’s stock is still trading at 98 times revenue and around 42 times sales based on next year’s estimates, according to CNBC. Some investors may want to hold off at current levels and consider buying at a lower valuation.

Zoom will continue benefiting in some form in a post-COVID reality after its technology platform has become a “critical component of how companies communicate,” Mizuho analyst Siti Panigrahi said in a note to clients. 

“The pandemic has also increased the recognition of its long-term importance in the new normal, post- pandemic workplace that will emerge over the coming years.”