Institutions are Hedging their Bets with Zoom Video (NASDAQ:ZM)
This article first appeared on Simply Wall St News.
Zoom Video Communications, Inc. ( NASDAQ:ZM )might be on the verge of reversing the trend. After a massive 10-bagger run in 2020, the stock started drifting lower, undoing some of the parabolic move up.
Yet, in July, it set what might be a higher low. Today we will examine the ownership structure of the company and elaborate why we believe that the institutional investors are hedging their broad market bets with Zoom Video Communications.
Latest Developments
Zoom shares rose almost 7% in yesterdays' session, as the Pandemic seems to be back on the menu. Several tech companies postponed the full-time office work until October while Facebook and Google are making vaccinations mandatory.
Zoom continues expanding, announcing the acquisition of contact center provider Five9( NasdaqGM:FIVN ) for a US$14.7b all-stock deal. This acquisition should improve Zoom's presence with enterprise customers.
While some may consider this as an expensive acquisition, it is an interesting move because Zoom is not using any of the US$5b in cash, despite having no debt. The company is playing with the market's money, expanding while riding out a positive trend.
Just last week, Keybanc issued an upgrade , classifying Zoom Video Communications as Overweight with a US$428 price target. They quoted the positive trends and the future that Zoom will have in the hybrid work environment,
Ownership Breakdown
With a market capitalization of US$119b, Zoom Video Communications is relatively large. We'd expect to see institutional investors on the register. Companies of this size are usually well known to retail investors, too.In the chart below, we can see that institutions are noticeable on the share registry.Let's take a closer look to see what the different types of shareholders can tell us about Zoom Video Communications.
View our latest analysis for Zoom Video Communications
What Does The Institutional Ownership Tell Us About Zoom Video Communications?
Institutions typically measure themselves against a benchmark when reporting to their investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
As you can see, institutional investors have a fair amount of stake in Zoom Video Communications.This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does.When multiple institutions own a stock, there's always a risk of being in a "crowded trade." When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Zoom Video Communications' historical earnings and revenue below, but keep in mind there's always more to the story.
Hedge funds don't have many shares in Zoom Video Communications.Ka-Shing Li is currently the largest shareholder, with 8.1% of shares outstanding.Meanwhile, the second and third largest shareholders, hold 8.0% and 4.2%, of the shares outstanding, respectively.Eric Yuan, The CEO, is the second-largest shareholder.
A closer look at our ownership figures suggests that the top 16 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to understand a stock's expected performance better.There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Zoom Video Communications
The definition of an insider can differ slightly between different countries, but members of the board of directors always count.Company management runs the business, but the CEO will answer to the board, even if they are a member of it.
Insider ownership is positive when it signals leadership is thinking like the actual owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.
Our information suggests that insiders maintain a significant holding - US$33b worth of shares in the US$119b company. That's entirely meaningful. It is good to see this level of investment. You can check here to see if those insiders have been buying recently.
General Public Ownership
With a 27% ownership, the general public has some degree of sway over Zoom Video Communications.While this size of ownership may not be enough to sway a policy decision in their favor, they can still make a collective impact on company policies.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand Zoom Video Communications better, we need to consider many other factors. Consider, for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Zoom Video Communications , and understanding them should be part of your investment process.
If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future .
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full-year annual report figures.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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