Earlier this month Zoom Video Communications Inc (NASDAQ:ZM) announced a $14.7-billion takeover of Five9.
On Monday, Bank of America analyst Daniel Bartus named Zoom a top communications stock pick after performing a deep dive on the company.
Market Leadership: Bartus said Zoom is a market leader in unified communications as a service (UCaaS), including 500,000 new Zoom Phone subscribers in the first quarter alone. Five9 is a contact center as a service (CCaaS) market leader, including 37% revenue growth in the past 12 months.
Bartus said both the UCaaS and CCaaS market are hot and are early in their cloud migration stages, creating plenty of opportunities for investors. Recent channel checks by Bank of America suggest the pandemic continues to drive UCaaS and CCaaS adoption.
Related Link: Analyst: Zoom Video Buyout Of Five9 Accelerates xCaaS Expansion
The Numbers: Bartus is projecting $5.4 billion in combined sales for Zoom and Five9 in 2022, and he said consensus analyst estimates of 27% growth in 2021 and 18.5% in 2022 may be too low given the market as a whole is growing at at least a 35% rate.
Bartus said it would even be reasonable for the combined company to reach $10 billion in sales and $3.6 billion in EBITDA by 2024. Given the stock’s valuation support and attractive footprint in an $84 billion market, Bartus said Zoom is his top pick in the communications software space.
“With a $5bn cash position and 36% operating margins, we also believe Zoom has an attractive opportunity to do more potential M&A, outspend competitors, and extend its leadership position,” Barus wrote in a note.
Bank of America has a Buy rating and $480 price target for Zoom.
Benzinga’s Take: Zoom and Five9 clearly have the type of growth numbers that investors love to see. Additional upside for the stock in the next several years will likely hinge on the company’s ability to maintain that growth in a post-pandemic world.