Zoom Video’s stock has seen a significant decline, losing 89% of its peak value from October 2020. The company’s stock price has fallen slightly in the year ending May 5, while revenue has only inched up. This is a stark contrast to the 355% revenue growth Zoom experienced in 2020, driving the company’s shares up by 747%. Factors contributing to the slowdown in growth include the end of the Covid-19 pandemic and Microsoft’s bundling of its Teams videoconferencing service with its Office software suite.
To revive investor enthusiasm, Zoom is looking towards generative AI as a potential growth driver. The company’s use of generative AI could enable it to target a large, fast-growing market and attract customers with AI-driven services. It remains to be seen whether these services can deliver enough value compared to rival products for customers to pay a premium above Zoom’s costs. Analysts are forecasting slower, single-digit growth for Zoom, indicating the company may need to leverage generative AI to prevent customer loss or potentially exceed growth expectations.
In its Fiscal Year 2024 Q4 financial results, Zoom exceeded analysts’ modest expectations. The company’s revenue and earnings per share outperformed estimates, with revenue growing by 2.6% and adjusted earnings per share increasing by 16%. Zoom is facing tough competition within the cloud software market, where other companies are seeing higher revenue growth rates. The key for Zoom will be to innovate and offer services that customers find valuable enough to pay for.
Zoom and its rivals are targeting various markets with the integration of generative AI into Internet voice services. Markets such as Voice over Internet Protocol, cloud telephony, Contact center as a service, and Unified Communications as a Service present significant growth opportunities. Zoom’s generative AI-powered companion offers features like meeting summaries, email prompts, and collaborative tools to retain and attract customers. However, the company faces challenges in providing enough value to customers compared to competitors.
GoTo is another major player in the AI-driven contact center services market, with significant economic benefits from applying generative AI internally. The company’s contact center service offers a seamless experience for both customers and agents, utilizing AI to improve productivity and customer interactions. Similarly, Vonage is focusing on AI-driven contact center solutions, aiming to provide tangible economic value to clients. The company is building its solution to minimize reputational risks and ensure compliance with regulatory requirements.
Analysts see upside potential in Zoom’s stock, despite slow growth forecasts. The company is banking on generative AI to drive faster growth and profitability by enhancing platform functionality and user experience. However, the biggest risk for Zoom lies in executing growth strategies across multiple areas simultaneously, including transitioning to larger customers with more complex sales. The competition in the market may pose a threat to Zoom’s market share, emphasizing the need to deliver compelling and valuable services to customers.