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Zoom’s informed development of an email service would pit it against entrenched players like Microsoft and Google. DA Davidson analyst Rishi Jaluria is bullish on Zoom’s move.
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Yesterday, The Information reported that
Zoom video communications
(ticker: ZM) has begun work on web-based email, calendar and directory services, steps that would put the company in more direct competition with
Microsoft
(MSFT) and
Alphabetis
(GOOGL) Google, among other players in the increasingly crowded market for communications software tools. Zoom has been gradually adding new products to its main video conferencing offering, but email would be a huge leap into a well-established business with established players, notably Microsoft Exchange and Outlook and Google Gmail.
DA Davidson analyst Rishi Jaluria writes in a research note Thursday that a Zoom move on email in particular “makes a lot of sense.” His view is that the pendulum is swinging toward software suites away from individual “best-in-class” products as customers try to consolidate vendors.
“We see a convergence of communication tools in the workplace 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 considering a move to collaborative communication tools such as
Weak technologies
(JOB).
Jaluria is less convinced of the company’s potential to move to directory services, where it would compete with Okta (OKTA) and Microsoft Azure Active Directory, tools that make it easier for companies to manage email and other services. “We see this as a less obvious adjacency and prefer to have Zoom go into content management or CCaaS (contact center as a service),” he writes.
Jaluria also notes that Zoom had around $ 1.9 billion in cash and could use cash or equity to make acquisitions in related product areas.
“In our view, the most important conclusion is that Zoom is proactively investing in new growth opportunities as we move 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 (except that this is effective as long as Zoom continues to invest aggressively in the core platform. ). “
Jaluria remains steadfast in its bullish stance on equities at a time when investors are hesitant: Zoom shares have fallen 35% in the past two months as concerns spread about how the growth rate will be affected of the company as the economy reopens in 2021.
“We believe that: the future of work has changed irreversibly,” he writes. “We will enter a future of hybrid work, where employees work from the office 3-4 days a week and remotely the other 1-2 days; and Zoom is a critical component in enabling that future of hybrid work. Zoom remains one of our favorite names heading into 2021.
He thinks the recent selloff has created a buying opportunity and repeats his Buy rating and his goal of $ 600 in Zoom stock.
Zoom shares fell 1.1% to $ 379.50 in Thursday’s trading.
Write to Eric J. Savitz at [email protected]
