Over the last twelve months, Zoom Communications (ZM) generated free cash flow equal to 6.7% of its market value. The median S&P 500 company sits at 4.4%. A yield that high means one of two things: a heavily discounted business or a company the market expects to shrink.
Over the last twelve months, Zoom Communications (ZM) generated free cash flow equal to 6.7% of its market value.
The median S&P 500 company sits at 4.4%.
A yield that high means one of two things: a heavily discounted business or a company the market expects to shrink.
Over the last twelve months, Zoom Communications (ZM) generated free cash flow equal to 6.7% of its market value. The median S&P 500 company sits at 4.4%. A yield that high means one of two things: a heavily discounted business or a company the market expects to shrink. So why are investors paying so little for Zoom’s cash?
Why Zoom’s Unspent Money Still Belongs To You
Shareholders own a slice of the free cash Zoom produces, just as they own a share of its profit. That holds true whether the company distributes those funds or keeps them on the balance sheet. Retained cash still belongs to the owners. When the broader market eventually recognizes that accumulated cash, share prices tend to follow suit. That effect is stronger when the cash pile is actively growing.
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Zoom Earns Wide Margins And Spends Little
Zoom sells business software like Zoom Workplace and its customer experience product, Zoom CX. These platforms generate significant amounts of cash. Over the last twelve months, the company converted 38.6% of its revenue into free cash flow. During the same period, its operating margin widened to 23.7%, up from 16.2% two years earlier. The company also requires little capital to keep its operations running, allocating just 4% of its operating cash flow to capital spending.
This free cash flow has grown every year. Over the last twelve months, it reached $1.9 billion, climbing from $1.1 billion three years earlier. Zoom also operates with virtually no leverage. The company holds total debt of $0.1 billion, compared to $7.2 billion in cash and short-term investments. A profile of rising cash, expanding margins, and almost no debt looks more like a business on sale than one in decline.
Averytin News Financial update.