This Onetime Market Darling Is Now a Cheap Stock to Buy

Zoom Communications has gone from Wall Street darling to wallflower. This narrow-moat company’s user base and revenue surged during the pandemic, which drove Zoom’s stock price well into premium territory relative to our fair value estimate. Since then, the stock has fallen back to earth and now trades at an attractive discount. We think Zoom has retained the customers it gained during the pandemic, and we expect it to continue to expand its portfolio and margins. Zoom is one of Morningstar Chief US Market Strategist Dave Sekera’s 3 Stocks to Buy That Are Beating the Market.

Zoom has disrupted and expanded the $100 billion market for collaboration software with its ease of use and superior user experience. We think the pandemic lockdowns demonstrated the strength of its products. Zoom relies mainly on a low-touch e-commerce model that lends itself to viral adoption, but it has also established a direct salesforce to gather and serve larger, more strategic customers. We like this approach because it offers the best of both worlds and should allow for penetration into the large enterprise accounts that drive revenue, as well as the ability to generate above-average margins.

Key Morningstar Metrics for Zoom

• Fair Value Estimate: $92
• Star Rating: 4 Stars
• Economic Moat Rating: Narrow
• Uncertainty Rating: Medium

Economic Moat Rating

We assign a narrow moat rating to Zoom based primarily on switching costs, with an emerging moat source arising from network effects. The covid-19 pandemic accelerated Zoom’s growth and provided a massive influx of new users, propelling an already-strong return on invested capital even higher. We think that many of these new customers, in particular enterprise customers, are sticky and will remain with the company for years. We believe that Zoom’s rapid scaling, expanding product portfolio, and move to establish itself as a communication platform rather than an application company will result in a competitive position that supports excess returns on capital over the next decade.

Read more about Zoom’s moat rating.

Fair Value Estimate for Zoom Stock

Our $92 fair value estimate implies a fiscal 2026 enterprise value/sales multiple of 4 times, adjusted price/earnings multiple of 17 times, and 6% free cash flow yield. We model a five-year compound annual growth rate of 3% through fiscal 2030. We think revenue will shift more toward existing customers over time, and solutions beyond Zoom Meetings will increase within the mix. We model non-GAAP operating margin declining slightly over the next five years from 39% in fiscal 2025. We mostly see stock-based compensation declining as a percentage of revenue as weighing down non-GAAP operating margin. We believe Zoom Phone and Zoom Contact Center will contribute significantly to revenue growth over the next decade.

Read more about Zoom’s fair value estimate.

Risk and Uncertainty

Zoom offers a freemium model and caters to companies of all sizes, which means revenue is concentrated among the largest customers. On the flip side, smaller customers typically have higher churn, which is likely exacerbated in Zoom’s case with mass adoption by consumers and small businesses during the covid lockdowns. Zoom faces strong competition from a variety of technology providers, notably Microsoft, Cisco, Alphabet, and LogMeIn, along with a wide variety of smaller niche solutions. Most competitors also offer a free version of their products, and the larger rivals can bundle a number of solutions with video conferencing.

Read more about Zoom’s risk and uncertainty.

Zoom Bulls Say

• Zoom’s user base and revenue surged during the pandemic. We expect most of these users to remain customers and drive continued growth in the coming years.
• Zoom’s disruptive technology is designed from the ground up as a video-first collaboration platform. Customer satisfaction is well above that of video conferencing peers.
• Zoom’s low-touch, low-friction model helps drive strong margins. The company is already profitable on a GAAP basis, which is well ahead of other high-growth software peers.

Zoom Bears Say

• The biggest risk facing Zoom is executing across so many different aspects of growth simultaneously. The company is moving from smaller to larger customers, and some of these sales are more complex.
• Cisco and Microsoft are prominent in the video conferencing market and can bundle a broad array of solutions in response to a competitive threat from Zoom.
• Growth was pulled forward during the pandemic. It is not clear that revenue can accelerate meaningfully from current levels on a more durable trajectory.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of July 23, 2025.