Zoom Stock's Biggest Problem Is Only Getting Worse

Pandemic-era phenom Zoom (NASDAQ: ZM) is slowly turning itself around after the work-from-home tailwind that drove incredible growth in 2020 and 2021 largely vanished. Revenue grew by 3.6% year over year in the second quarter, driven by a 10.2% rise in enterprise revenue, and profitability improved dramatically. enterprise revenue now accounts for about 58% of total revenue as the company reduces its dependence on the more volatile self-serve channel.

Thanks to layoffs earlier this year and other cost-cutting measures, Zoom has brought its bottom line back up to healthy levels. Zoom's GAAP operating margin came in at 15.6% in the second quarter, up from 11.1% in the prior-year period. The company produced GAAP net income of $182 million on $1.14 billion of revenue.

That's solid progress, but it's not enough to justify Zoom's stock price. Even though shares of Zoom are down a whopping 88% from their all-time high, it still requires quite a bit of optimism to justify the valuation. If you take Zoom's second-quarter net income and annualize it, you get a price-to-earnings ratio of about 27. For a company that's barely growing at all, that seems pricey.

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Source Fool.com