Zoom Video Communications (NASDAQ:ZM) announced last week that the company would no longer be merging with cloud contact platform Five9 (NASDAQ:FIVN). Zoom announced plans to acquire the company back in July in all-stock deal worth $14.7 billion. The move would have given Zoom a way to expand its offerings.
Investors are sometimes wary of high-priced valuations, especially since they can lead to significant dilution (such as in an all-stock deal). Since July, shares of Zoom have crashed more than 30% while the S&P 500 has remained relatively flat.
Although the acquisition would have given Zoom more opportunities to grow, the business still is in great shape, coming off a second-quarter result where sales of more than $1 billion were up 54% year over year. The company also announced the launch of Zoom Apps, making it easy to enhance the user experience by integrating other applications with Zoom's videoconferencing platform.
While there are questions about Zoom's future growth, especially as office workers eventually go back to in-person meetings, with an emergence in COVID-19 cases, virtual meetings could continue to be popular for the foreseeable future. Although Zoom is trading at a high forward price-to-earnings multiple of 55, other high growth stocks such as Square (NYSE:SQ) and DocuSign (NASDAQ:DOCU) trade at even more obscene multiples of 129 and 147 times future profits, respectively.
Multiple analysts have price targets for Zoom at over $370, with the stock having an average upside of around 50% from where it is today.
Although Zoom isn't a cheap growth stock to own, it's still a good buy despite the split with Five9.
