Zoom ($ZM) looks decent, but is probably not undervalued.

I think you all know Zoom Communications or its ticker HM in short.

Zoom is the poster child that is benefiting from the pandemic since we suddenly all have to use it so that we can communicate well on a small or broad group basis.

Here’s the stock price since then:

The share price peaked in October 2020, which is likely when it was announced that Covid was about to end. It peaked at $585 and fell to a low of $55 in August 2024. That was brutal.

Interestingly enough, Zoom has always been profitable and I’m pretty sure a few value-oriented investors like me would have looked at it to see if it’s a good buy.

Recently I made this saying that if you like tech stocks like Amazon, Google Meta Platforms, and Apple, you should be interested in these software information stocks that look like they’ve been decimated.

But most likely you won’t be interested because if they get decimated, it means these IT stocks have inherent problems. But didn’t Meta platforms and Google succumb to decimating runs?

I guess I would think that their problems are solvable or temporary problems.

That’s my complaint against people who claim I invest in American technology because they have a competitive advantage. No, you don’t. You just like to invest in large-cap stocks that happen to be tech that has done well lately.

Anyway, I went through Jamin Bell’s Clouded Judgment. Jamin delivered great value by ranking the cloud computing companies based on various metrics. I saw Zoom trading at 11 times EV/NTM FCF (net 12 months free cash flow).

It wasn’t a surprise to me, but I thought Zoom’s share price was showing some strength and I wonder what their fundamentals are:

The stock of software-as-a-service has likely been decimated due to artificial intelligence impacting their operations. While these SAAS companies still exist, they are cheap today not based on the next decade’s cash flow, but based on how long their future cash flow and growth rate will last.

AI would potentially reduce their margins and that they are currently undergoing violent price revisions. As more and more of your value lies in long-term cash flow, the repricing will become more violent.

This chart shows three-month sales estimate revisions. Software stocks are seeing the fastest pace of downward revisions to revenue estimates since the financial crisis, indicating how they think the environment is affecting them.

I want to keep this message as short as possible. This is just to write up some of the data work I’ve been doing.

I’ve listed Zoom’s revenue, cost of revenue, gross profit, and their growth below:

You would notice that sales exploded in 2021. That’s when sales actually peaked. The cost of revenue also peaked. Since 2022, they have experienced very low sales growth. It’s like almost everyone knows Zoom and those who feel like they need Zoom are already on Zoom.

But what I noticed is that their operating costs have decreased over time:

Note that R&D, sales and marketing, and general and administrative costs started to rise, but peaked in 2023/2024 and then started to decline. And with that, the operating result also started to improve.

The last line shows their results for the first 9 months. The financial data below compares operating expenses for the first nine months with a year ago:

It’s still going down.

Here are the net income, operating cash flow, stock-based compensation, and free cash flow when we take out the stock-based compensation:

Stock-based compensation peaked in 2023 and is also starting to decline. I think this year will also be lower.

Zoom’s diluted shares outstanding are 305 million and although they bought back their shares, the impact was minimal. In November 2025, they approved another $1 billion for buybacks.

A value of $92.1 brings their market capitalization to $28 billion. Zoom has about $7.9 billion in cash and short-term securities and no debt, so their enterprise value is about $20 billion.

Projected free cash flow is almost $2 billion, so that explains the 10/11 times EV/NTM FCF. But if we eliminate stock-based compensation, I suspect full-year free cash flow will be $1.2 billion.

This brings the EV/FCF to 16.6 times or 6% free cash flow yield.

I think it is currently trading at fair value.

Could Zoom find itself in that unique situation?

1. How likely is AI to disrupt these? They provide a service that requires reliability.
2. In a way, AI may have benefited them in such a way that they optimize their costs.
3. Although they invest in R&D, this is not rocket science.
4. There are many who already know Zoom, so marketing and outreach can be better optimized.

Zooming in is quite similar to Tencent Music in a way (my Tencent Music article), where they may be trying to find the sweet spot.

I like that maybe all the risks are gone:

1. If they have to slow down, they have already gone through a period of slowing down.
2. If AI is going to be a problem, it should already be affecting them.

In a sense, markets look quite efficient.

The market seems to think that Zoom isn’t experiencing extremely stellar growth, but it won’t be disrupted either.

It’s not as cheap with payment companies like PayPal and Shift4, but in a sense, Zoom’s prospects may not be so bleak compared to them either.

I wonder how much the spend can be optimized, but even then would I buy it at a 6% FCF yield?

If it ever gets to $70-$73 with the FCF yield at 8.4%, I might bite.

I also wonder what the catalysts are that can increase sales. That would be the icing on the cake.

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Kyith is the owner and sole writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, more solid wealth foundations, how to pursue a passive investing strategy, learn about investing in REITs, and the basics of active investing.

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Kyith worked as an IT operations engineer from 2004 to 2019. He currently works as a Senior Solutions Specialist at Fee-only Wealth Advisory Firm Providend. All opinions expressed on Investment Moats are his own and do not represent the views of Providend.

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