Zoom Video Communications Inc. celebrated its initial public offering on April 18. That means everyday investors can jump on the line with the video-conferencing company, which debuted on the Nasdaq stock exchange under the ticker symbol ZM (not to be confused with ZOOM, a delisted Chinese tech company).
Zoom’s cloud-based service allows people in different locations with different devices to connect face-to-face and share content via video, voice and chat. In 2019, Zoom has facilitated more than 5 billion monthly meeting minutes.
So Zoom is popular. But does its stock belong in your portfolio? Read on for the steps you should take before buying Zoom.
1. Decide if Zoom is right for you
Zoom makes money by selling its platform subscriptions to everyone from single users to companies with hundreds of thousands of employees. Unlike that other highly anticipated spring IPO, Uber, Zoom is entering the public market as a profitable company.
In the latest fiscal year it brought in more than $7.5 million in profits, thanks in part to marquee companies like Microsoft, Google, Salesforce, Slack, Altlassian and Dropbox integrating Zoom’s technology into their platforms. (Full disclosure: NerdWallet uses Zoom. Pro tip: Don’t neglect to hit “mute” when your dog starts barking at the mailman.)
But profitability is just one of many factors investors should consider before buying a stock. Spend some face time with Zoom’s S-1 filing with the Securities and Exchange Commission. It’s a treasure trove of information about the company’s operations, financials, customers, case studies, leadership team, challenges and growth opportunities. In other words, all the things that can help investors determine if Zoom is a worthy addition to their portfolio.
You might also wish to consider your budget in the context of Zoom’s share price. For its IPO, Zoom anticipates selling 20.9 million shares at an expected offering price of $33 to $35 per share, an increase from the the company’s initial IPO price range of $28 to $32 per share.
» Want more detail? Learn how to research stocks
A caveat if you’re investing during the IPO or soon after: IPOs are notoriously volatile, with dramatic and unpredictable price swings that may have nothing to do with the actual value of the company stock.
Consider that it took Facebook more than one year to trade above its 2012 IPO price. Many companies spike early and struggle to regain those heights. Loser IPOs, at least early on, are more common than you’d think. According to investment banker UBS’ analysis, of the 7,000 companies that IPOed between 1975 and 2011, more than 60% of them had negative absolute returns after five years of being publicly traded.
When investing in a company for its long-term growth potential — which, IPO or not, should be every investor’s goal — you don’t have to rush in. Late-comers to stocks like Apple, Amazon and Google have enjoyed rich investment gains because these companies continued to grow well after their IPOs.
2. Open a brokerage account
To buy Zoom stock, you’re going to need a brokerage account. (New to this? See how to open a brokerage account.) In short, you’ll want to look for a broker that has a low account minimum, reasonable commissions (which you’ll pay when you buy shares of Zoom) and a user-friendly platform. Some of our picks for best brokers for beginners are highlighted below:
3. Choose your order type
You’re likely going to choose between a market order (“buy this stock right now at the prevailing market price”) or a limit order (“buy this stock only if it’s available at the price I’ve specified”). For more details, see this piece on how to buy stocks, which walks you through the process of placing an order.
4. Place your Zoom order
To begin: Zoom will trade on the Nasdaq under the ticker symbol ZM. This is not to be confused with ZOOM Technologies (ticker: ZOOM), the delisted stock of a mostly shuttered Beijing-based wireless tech distributor that enjoyed a brief share price spike when the U.S.-based Zoom announced its intention to go public and again on IPO day. Be sure to double-check that ticker symbol unless you wish to own part of an unrelated and struggling Chinese telecommunications firm.
Also remember that you need not over-indulge in Zoom with your first purchase. Buying a large amount of a single stock all at once can be risky. Spreading your purchase out over time can help reduce that risk.
Lastly, note that if you’re opening a new brokerage account to buy Zoom, it may take a few days for the money you deposit in your account to be available to invest. But that’s OK. If Zoom is a company worth owning for the long haul, having to wait a day or two to buy it won’t make much difference in the end.