Two of the most popular tech stocks during the pandemic were Salesforce
CRM
and Zoom Video Communications
ZM
. Their popularity and notoriety increased as employers heavily relied upon both services for telecommuting and remote work purposes as covid-19 shut down offices.
Fast forward to the end of 2022, and both stocks are near their 52-week lows. Let’s see if it’s time to buy Salesforce or Zoom stock in the hopes of a rebound in 2023.
Brief Overview
Salesforce is the largest customer relationship management vendor in the world, enabling organizations to better manage critical operations. The company’s offerings include sales force automation, customer service and support, marketing automation, document management, analytics, and custom application development.
As for Zoom Video, the company went public in 2019 and was very instrumental in remote work during the pandemic as a communications platform that combines video, audio, phone, screen sharing, and chat functionalities.
Outside of inflationary concerns challenging the broader market, Zoom Video, in particular, still has much to prove after its usage has naturally declined as we move further away from the pandemic.
Recent Performance & Valuation
Salesforce stock is down -49% year to date to slightly outperform Zoom Video’s -62%, but both have lagged the S&P 50’s -20% and the Nasdaq’s -32%. Over the last three years since Zoom went public, ZM is up +11% to outperform CRM’s -17% during this time frame. These performances have also lagged the broader indexes.
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Trading at $129 per share and roughly 51% from its highs, Salesforce has a forward P/E of 26X. In comparison, Zoom Video is now 66% off its high at $69 a share and trades at 17.1X forward earnings.
Taking the last three years into account since Zoom went public, ZM trades well below its absurd high of 11,193X and 79% below the median of 81.7X. When comparing this period, CRM trades nicely below its three-year high of 245.4X and also 79% below its median of 126.4X.
With both stocks trading at a 79% discount to their median P/Es, let’s see which companies’ outlook appears better going into 2023.
Growth
Salesforce earnings are now projected to rise 3% in its current fiscal 2023 and jump 15% in FY24 at $5.65 per share. More impressive, earnings estimate revisions have trended higher for both FY23 and FY24 over the last 90 days.
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On the top line, sales are forecasted to climb 17% in FY23 and rise another 10% in FY24 to $34.22 billion. FY24 would be a stellar 157% increase from pre-pandemic levels with 2019 sales at $13.28 billion.
Pivoting to Zoom Video, its current fiscal 2023 earnings are projected to decline -19% at $4.08 per share. Fiscal 2024 earnings are expected to drop another -9%.
This is a clear indication that the tougher operating environment is affecting Zoom Video’s bottom line.
Earnings estimates have gone up for FY23 but have slightly declined for FY24.
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Sales are forecasted to be up 7% in FY23 and rise another 5% in FY24 to $4.60 billion. Still, on the top line, FY24 would be an impressive 1,290% increase from 2019 sales of $331 million.
Bottom Line
The top line growth of Salesforce (CRM) and Zoom Video (ZM) makes both stocks look like viable investments for 2023 and beyond. However, Salesforce’s bottom line looks stronger, with CRM sporting a Zacks Rank #2 (Buy) in correlation with rising earnings estimates revisions for FY23 and FY24.
CRM is a more diversified cloud software firm while Zoom has mostly remained in the communications space with ZM landing a Zacks Rank #3 (Hold) at the moment. Both stocks are starting to look attractive at their current levels, especially from a long-term perspective.
The average Zacks Price Target suggests 48% upside for CRM’s stock and 38% upside for ZM, respectively.
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