Ready to sign up for Zoom mail?
Yesterday, The InformationreportedthatZoom Video Communications(ticker: ZM) has begun working on web-based e-mail, calendar and directory services, steps that would put the company in more direct competition withMicrosoft(MSFT) andAlphabet’s(GOOGL) Google, among other players in the increasingly crowded market for communications software tools. Zoom has been gradually adding new products to its core videoconferencing offering—but email would be a huge leap into a well-established business with entrenched players, in particular Microsoft Exchange and Outlook and Google Gmail.
D.A. Davidson analyst Rishi Jaluria writes in a research note Thursday that a Zoom move into email in particular “makes a lot of sense.” His view is that the pendulum is swinging back toward software suites and away from individual “best-of-breed” products as customers try to consolidate vendors.
“We see a convergence of workplace communication tools and it would make sense for Zoom to add functionality for email and real-time messaging as part of the existing platform,” he writes, noting that there have been previous reports that the company is mulling a move into collaborative communications tools likeSlack Technologies(WORK).
Jaluria is less convinced of the potential for the company to move into directory services, in which it would compete with Okta (OKTA) and Microsoft Azure Active Directory—tools that make it easy for companies to administer email and other services. “We see this as a less obvious adjacency and would rather see Zoom get into content management or CCaaS (contact center as a service),” he writes.
Jaluria also points out that Zoom had about $1.9 billion in cash—and could use cash or equity to make acquisitions in related product areas.
“The bigger takeaway, in our view, is that Zoom is proactively investing in new growth opportunities as we head into a post-pandemic world,” he writes. “It would be easier for Zoom to rest on its laurels, but the company is making the right investment to grow its footprint and add more value to customers (with the caveat that this is effective as long as Zoom continues investing aggressively in the core platform).”
Jaluria is stickling to his bullish stance on the stock at a time when investors are wavering - Zoom shares have tumbled about 35% over the last two months as worries spread about how the company’s growth rate will be affected as the economy reopens in 2021.
“We take the view that: the future of work has been irreversibly changed,” he writes. “We will enter a hybrid work future, where employees work from the office 3-4 days a week and remote the other 1-2 days; and Zoom is a critical component of enabling that hybrid work future. Zoom remains one of our favorite names headed into 2021.
He thinks the recent sellloff has created a buying opportunity, and repeats his Buy rating and $600 target on Zoom stock.
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