FPA Queens Road, an investment management firm, published its “FPA U.S. Core Equity Fund” first-quarter 2022 investor letter – a copy of which can be downloaded here. In the first quarter of 2022, the FPA U.S. Core Equity Fund, Inc.’s (“Fund”) performance was -12.25% (-12.01% before fees and expenses). Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, FPA U.S. Core Equity Fund mentioned Zoom Video Communications, Inc. (NASDAQ:ZM) and explained its insights for the company. Founded in 2011, Zoom Video Communications, Inc. (NASDAQ:ZM) is a Santa Clara, California-based communications technology company with a $32.8 billion market capitalization. Zoom Video Communications, Inc. (NASDAQ:ZM) delivered a -40.19% return since the beginning of the year, while its 12-month returns are down by -70.61%. The stock closed at $110.00 per share on June 17, 2022.
Here is what FPA U.S. Core Equity Fund has to say about Zoom Video Communications, Inc. (NASDAQ:ZM) in its Q1 2022 investor letter:
“One of the Fund’s biggest losers in the first quarter was Zoom Video Communications. I have admired ZM’s business ever since I began using the service a few years ago before the Covid-19 pandemic emerged. Despite my admiration for the business, the valuation since it came public three years ago was too rich for my blood until recently.
ZM’s business has been one of the greatest beneficiaries from the pandemic, but one would have no idea that was the case looking at its stock price performance over the past two years. ZM is down 20% over that time and now trades at the cheapest valuation since coming public. When ZM came public in April 2019 it had an Enterprise Value (“EV”) of $17.4 billion, traded at 27.9x FY2020 revenue and 1,370x FY2020 operating income. It now has an EV of $29.3 billion, trades at 6.4x FY2023 revenue, 20.3x FY2023 operating income and 26.3x EPS. Since the 10-year Treasury Yield was 2.56% when it came public compared to 2.33% at March 31, 2022, this huge multiple contraction appears to be largely tied to the market’s view of its prospects.
Before opining on its future, one should admire what ZM has accomplished over the past two years. ZM’s revenue increased from $623 million in FY2020 to $4.1 billion in FY2022 while its operating income increased from $13 million to over $1.1 billion—all while increasing its R&D spend from $33 million to $363 million. Looking at its last quarter, ZM has very high gross (76.0%) and operating (23.5%) margins, which helps translate into robust free cash flow generation. Since coming public, ZM’s cash & equivalents has increased from $737 million to $5.4 billion, which now makes up over 15% of its market capitalization. ZM is expected to grow its revenue at a 12.2% compound annual growth rate (“CAGR”) over the next three years. Looking at FY2025 (ending 1/31/25) consensus estimates, excluding its cash & equivalents, ZM trades at 16.8x operating income and 21.1x EPS…” (Click here to see the full text)
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Our calculations show that Zoom Video Communications, Inc. (NASDAQ:ZM) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Zoom Video Communications, Inc. (NASDAQ:ZM) was in 43 hedge fund portfolios at the end of the first quarter of 2022, compared to 48 funds in the previous quarter. Zoom Video Communications, Inc. (NASDAQ:ZM) delivered a -5.40% return in the past 3 months.
In June 2022, we also shared another hedge fund’s views on Zoom Video Communications, Inc. (NASDAQ:ZM) in 5 Beaten-Down Tech Stocks to Buy Today for Long-Term Gains. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
