ZM

We rate Zoom Communications, Inc. (ZM) as a Hold with a composite score of 60.4/100 at a current price of $87.50. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (75th percentile) and momentum (72th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (30th percentile) and quality (55th percentile) tempers our overall conviction. We assign a Narrow Moat rating (58/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Zoom Communications, Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 60.4/100 places it at rank #656 in our full 7,333-stock universe. With a $26.1B market capitalization, Zoom Communications, Inc. operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

The outlook is moderately positive, with revenue expanding at 6% and favorable momentum (72th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 77% (+17.3pp vs sector) narrow to operating margins of 22% (+18.4pp vs sector) and net margins of 29.6%, yielding a gross-to-net conversion rate of 39%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $87.50, Zoom Communications, Inc. is trading near fair value based on current fundamentals. Our value factor score of 67/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 18.7x (a 21% discount to the sector median of 23.7x), EV/EBITDA of 25.3x (at a premium), P/B of 2.9x, P/S of 5.6x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to Zoom Communications, Inc.. The company exhibits strong financial stability with a beta of 0.89, conservative leverage (23% D/E), and a stability factor in the 75th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 75th percentile with quality at the 55th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 77% provide a buffer against cost pressures; conservative leverage (23% D/E) limits balance sheet risk; above-average stability (75th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Zoom Communications, Inc.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 15.4%, disciplined leverage (23% D/E), best-in-class net margins of 29.6%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — Zoom Communications, Inc. approaches this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 12.6% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, Zoom Communications, Inc. receives a Hold rating with a composite score of 60.4/100 (rank #656 of 7,333). Our quantitative framework assigns a Narrow Moat (58/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 60/100.

Our analysis supports a neutral stance on Zoom Communications, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.