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Shares of Zoom Video have lost 89% of the peak value they reached in October 2020.
The last year has not been great for investors — with Zoom’s stock price falling slightly in the year ending May 5 while the company’s revenue inched up.
That is a far cry from the 355% revenue growth Zoom enjoyed in 2020. As I wrote in a November 2023 Forbes post, this surge propelled the company’s shares up by 747% to $559 a piece in the year ending October 16, 2020.
What is behind the slowdown in Zoom’s growth? The end of the Covid-19 pandemic has been a major growth headwind. So has Microsoft’s strategy of bundling the software giant’s Teams videoconferencing service with its Office software suite, noted Investor’s Business Daily.
Reviving investors’ enthusiasm for Zoom stock could depend on whether the company can grow faster than they expect. With ChatGPT’s rapid adoption since November 2022, could generative AI help Zoom grow faster?
The answer depends on three questions:
- Will Zoom’s use of generative AI enable the company to target a large, fast-growing market?
- Will customers use Zoom’s generative AI-driven services?
- Will such services deliver enough value — compared to rival products — for customers to pay a price that exceeds Zoom’s costs?
Zoom has affirmative answers for the first and second questions. However, it is too early to know the answer to the final question.
While Zoom’s AI-driven service is attracting users, the company does not charge customers for its voice-to-text call transcribing service and rivals may be offering services that customers find more valuable.
Analysts forecast slower, single-digit growth — a five year average annual growth rate of 1.5% according to Yahoo! Finance. This tepid forecast suggests two possibilities:
- Rather than boosting revenue, generative AI could keep Zoom from losing customers; or
- Analysts are underestimating Zoom’s growth potential.
Zoom’s Fiscal Year 2024 Q4 Financial Results
Zoom's cloud-based software sets up video calls, provides chat tools, and enables customers to share content. Zoom became a market darling during the pandemic and has since seen its revenue growth decline to 2.6% in the company’s most recent quarter.
That is when Zoom exceeded many of analysts’ modest expectations. Here are the key numbers from Zoom’s Q4 2024 earnings report:
- Q4 2024 revenue: $1.146 billion — up 2.6%, $13 million ahead of analysts’ estimates, IBD reported.
- Q4 2024 enterprise revenue: $667.3 million — up 5%, $8.7 million above estimates, IBD noted.
- Q4 2024 adjusted earnings per share: $1.42 — 16% more than the year before and 27 cents a shares ahead of estimates, according to IBD.
- Fiscal year 2025 revenue guidance: roughly $4.6 billion — $37 million ahead of estimates, IBD wrote.
- Fiscal year 2025 earnings per share: $4.86 at the company’s outlook midpoint — 20 cents a share ahead of estimates, noted IBD.
Zoom’s growth is anemic compared to cloud-software companies generating more than $1 billion in annual revenue, according to S&P Global Market Intelligence. For example, Workday
The Market For Internet Voice Services
This suggests Zoom needs to find new services for which customers are willing to pay a price exceeding the cost of supplying generative AI powered tools.
In order for that to happen, providers must compete in large, fast-growing markets. However, unless competitors in these markets can apply generative AI to help their customers grow faster, supplying such tools will not pay off.
In recent interviews, Zoom and its rivals did not provide a specific forecast for the market opportunity to deliver generative AI-powered services. Here are four markets Zoom, GoTo, and Vonage told me they are targeting:
- Voice over Internet Protocol services: $123 billion (2021 revenue) growing at 10.2% average annual rate between 2022 and 2032, according to Future Market Insights. VoIP growth is propelled by adoption of cloud-based offerings that provide “ improved scalability, flexibility, and simplified management,” a Zoom spokesperson wrote in a May 5 email.
- Cloud telephony: $20 billion (2023 revenue) cloud telephony market will grow at 10% a year as “new seats come to the cloud and will then taper off,” according to my April 26 interview with GoTo’s chief product and technology officer, Olga Lagunova.
- Contact center as a service: $15 billion (2023 revenue) CCaaS market will “grow at 20% to 25% in India and the Philippines as customer service continues to be critical,” Lagunova told me.
- Unified Communications as a Service: more than $30 billion over the next few years “growing at 10% annually,“ Savinay Berry, Vonage’s executive vice president of product and engineering, told me in an April 30 interview. “It’s a private branch exchange in the cloud that enables communication between the main office and branches.”
How Zoom And Its Rivals Integrate Generative AI Into Internet Voice
Zoom is trying to participate in the AI boom. The company’s generative-AI powered companion allows paid users to access features including meeting summaries and composing prompts for email and chat. Rather than increase revenue, “Zoom Video expects gen AI tools to retain and add customers,” noted IBD.
Zoom’s most recent quarter reveals evidence of new product adoption. Zoom added a significant number of new customers — with 510,000 customers using Zoom AI — and expanded the average deal size. For example, the number of Zoom Phone customers with 10,000 or more seats grew 27% to 95. Zoom Contact Center licenses expanded nearly three-fold, according to Zoom’s FY 2024 Q4 earnings report.
Zoom recently decided not to change its platform terms of service so the company could gather user data to train AI model. Meanwhile, this year Zoom is planning to release Docs — an AI-powered workspace for documentation, project tracking and management tasks, IBD reported.
Despite these efforts, Zoom “hasn’t even been able to break into the market’s artificial-intelligence party,” wrote the Wall Street Journal.
Other companies — notably ServiceNow
Zoom uses AI Companion across its operations “to enhance productivity and foster better collaboration,” the Zoom spokesperson said. Zoom Workplace — an AI-powered collaboration tool — can provide benefits to customers such as facilitating connections and improving productivity among internal teams and between Zoom and customers and suppliers, the spokesperson explained.
Zoom’s generative AI uses a blend of large language models. The company “dynamically incorporates” LLMs from OpenAI and Anthropic “as well as Zoom’s own models, for superior results and cost-efficiency,” the spokesperson noted.
The key question is whether Zoom can offer enough value for customers to be willing to pay extra for AI-powered services — most notably in light of services offered by rivals.
GoTo Uses Generative AI For Coding And Contact Center Services
One such rival is GoTo — the Boston-based business communications provider formerly known as LogMein. GoTo merged with Citrix Systems in 2017 in a $1.8 billion deal. Vista Equity Partners led a leveraged buyout of Citrix for $16.5 billion in September 2022.
GoTo has gotten significant economic benefits from applying generative AI to its internal IT operations and its CCaaS. “Github Copilot is amazing,” Lagunova told me. “It’s the next level of impossible. It lets us manage five times more with the same number of people and improves productivity by 50%. It offers just in time suggestions to engineers who love and use the tools,” she added.
Zoom and GoTo are both aiming at the CCaaS opportunity. Zoom offered to acquire a contact center service provider, Five9 in March 2021 for $14.7 billion. But the deal fell apart that September as Zoom’s stock price fell. Zoom Video is now aiming to be a player in the contact center market with its own products, noted IBD.
GoTo launched its AI-powered contact center service in the first quarter of 2024. Although GoTo declined to share the number of customers who have purchased it, the service appears to use AI in ways that create value for call center supervisors and agents.
GoTo’s contact center service enables customers to access a virtual agent or talk with a human agent. The service uses an LLM customers that customers can choose to train with transcripts from their customer service calls.
Meanwhile, the service drafts messages that agents can send to consumers and summarizes what happened during the call — focusing on the customer’s problem and how it was handled.
In addition, GoTo’s solution makes it easier for call center supervisors to do their jobs. “At a glance, the service lets supervisors sense customer sentiment,” Lagunova said. The service also helps supervisors determine “whether agents are following best practices and handle customer concerns — enabling a supervisor to jump in if needed.”
GoTo’s AI-powered contact center service strikes me as having the potential to deliver enough tangible economic value to get customers to pay extra.
Vonage’s Hybrid Contact Center Solution
Another rival introducing a contact center solution is Vonage — a provider of Unified Communications as a Service and CCaaS solutions.
Ericsson bought Vonage in July 2022 for $6.2 billion. Sadly for the acquirer, Ericsson wrote down the value of the Vonage acquisition by $2.94 billion in October 2023, noted Mobile Europe.
“Our clients include Uber
Vonage sees significant growth potential for its AI-driven contact center solution. “If I have a new contact center client, they are asking whether they should start with AI-powered chatbots or human agents,” he said.
Vonage is paying attention to how much value such a solution would provide customers. “We are going to provide key performance indicators for helping companies assess the return on investment,” Berry said.
Vonage will build its contact center solution to minimize reputational risk for its customers. “We will carefully train the data set to avoid hallucinations and maximize reliability,” he said.
”We will manifest the tool in middleware to enable the app. And we will have guardrails in the technology and moderate it with people. Finally we will assure compliance and meet regulatory requirements,” he added.
Vonage will provide customers the option to have human or virtual agents — which could alter the company’s business model. “If customers decide to start with the chatbots, we will have to change the per-seat pricing model we use for human agents,” Berry told me.
“No matter which one customers choose, they want to engage better and faster with their end users. The data itself — training LLMs with our own data — will make the difference. Clients want to deliver customers a differentiated experience through a hybrid approach,” he concluded.
Vonage’s approach also sounds promising. However, GoTo, Zoom and other rivals could introduce even more compelling call center solutions.
Will Zoom Stock Rise?
Despite slow growth forecasts, analysts see upside in Zoom’s stock. Based on 24 analysts offering 12-month price targets for Zoom, the stock has 25.7% upside based on an average price target of $77.68, according to TipRanks.
Zoom envisions faster growth and profitability by applying generative AI — in Zoom Workplace and AI companion — to improve the company’s platform functionality and user experience. “ Zoom offers smarter collaboration solutions to help attract and retain users, positioning the company for continued expansion,” noted the Zoom spokesperson.
With analysts forecasting growth to slow, investors should consider the risks. The biggest of which “is executing across so many different aspects of growth simultaneously,” Morningstar noted. “For example, Zoom Phone is a more complex sale, and the company is moving from smaller to larger customers.”
To that risk, I would add the potential for rivals to win market share by introducing competing services delivering enough value for customers to pay a high price.
