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1 Green Flag for Zoom Video Communications in 2022, and 1 Red Flag

The pandemic winner has plans to reaccelerate growth but faces stiff headwinds from economic reopening.

Zoom Video Communications (ZM -2.69%) definitely made a name for itself during the coronavirus pandemic. Millions of folks sent home for remote working and learning turned to Zoom's application to help them stay connected and get done things they otherwise couldn't complete. As a result, revenue soared for Zoom in 2020 and 2021. 

As the world continues to make significant progress against COVID-19 and return to some normalcy, employers are calling staff back to the office and students are mostly all back in school, which will be a red flag for Zoom in 2022. That said, the company is not standing still.

Management recently announced a new product that will help enterprises improve their customer service. Zoom Contact Center could be a green flag for the company this year and beyond. 

Image source: Getty Images.

The red flag: Back to the office

You would be hard-pressed to find a company that benefited from the situations created by the pandemic as much as Zoom did. In fiscal 2021 (which ended Jan. 31, 2021), Zoom's revenue exploded by 325.8% to $2.65 billion, up from $623 million the year before. During that crazy year, Zoom Video went from little-known to becoming a household name.

ZM Revenue (Annual) data by YCharts

The company's profits also soared, with net income rising from $21.7 million to $671 million. The momentum continued into fiscal 2022 (which ended Jan. 31), with net income roughly doubling to $1.375 billion. However, the company also experienced some headwinds from the economic reopening that is well underway. Revenue growth for the year slowed from 325.8% to 54.6%. Management expects more deceleration in the current fiscal year and has guided for revenue growth of 11% in fiscal 2023.

The bulk of the slowdown will come from enterprises that sign up for Zoom through its online sales channel. These tend to be businesses with fewer than 10 employees. Management expects the self-serve customers will comprise a smaller share of overall revenue in the coming year as some of the cohorts that signed up during the initial stages of the pandemic revert to pre-pandemic working solutions.

ZM Net Income (Quarterly) data by YCharts

The green flag: Zoom Contact Center 

In February, Zoom announced a new service designed to help enterprises deliver better customer service. Management discussed the launch in prepared remarks accompanying its fourth-quarter 2022 earnings release:

'We announced the general availability of Zoom Contact Center, an omnichannel customer engagement solution that is optimized for video and integrated right into the Zoom client. It brings unified communications together with modern contact center capabilities, helps customers connect over video, and also supports channels like voice, SMS, and webchat.'

Customer support is ripe for innovation as few consumers are satisfied with existing solutions. Waiting on hold for several minutes, attempting to bypass automated answers, and explaining your issue over the phone or in the chatbox have not worked to improve the customer experience. A Zoom video integration has the potential to improve customer satisfaction. Think of how much easier it would be if you could show the customer service agent the problem you are experiencing with a product. 

Indeed, Zoom has high hopes for this service and aims to take a meaningful share of the estimated $18 billion contact center total addressable market. This could be a green flag for Zoom in calendar year 2022 and beyond.

Nevertheless, Zoom's quickly decelerating revenue growth is taking center stage in investors' minds, and the stock price is down 80% off its high. It's a good time for long-term investors to jump in and add shares of this discounted growth stock.

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