The adoption of video conferencing solutions provided by growth stocks like Zoom Video Communications has accelerated in the Covid-19 lockdowns. The transition to reduce face-to-face meetings had already begun before the pandemic, as businesses sought to reduce their carbon footprints. However, while Zoom is thriving under current market conditions, the platform is not perfectly suited for all types of business activities. That’s where this cheap growth stock comes into play.
An opportunity to beat Zoom?
LoopUp Group (LSE:LOOP) also provides a video conferencing platform. There is a vast array of competitors within the market space. However, the firm has differentiated itself by targeting the professional services market (PSM). This includes legal, financial, and client-led business sectors.
Clients in the PSM sector have distinct needs and priorities compared to the general video conferencing market that Zoom focuses on. Most conference calls are with external guests who may have little patience for downloading and learning new software.
LoopUp’s platform is designed specifically to suit the needs of businesses and their external guests. Members can create and join calls by using a phone and an Internet browser – no software download needed.
How does the growth stock work?
The business model is quite simple. Customers can either subscribe to a monthly package or elect for a pay-as-you-go option. The platform seamlessly integrates with Microsoft Outlook, allowing the host to schedule meetings and create groups.
This approach may appear simple, but so far, LoopUp has been the only firm to execute it on a large scale successfully. With support for up to 150 people in a single call – and no loss in quality – the company has grown a client list of over 5,000 companies including over 20% of the world’s top-100 private equity firms.
Before Covid-19, active users had been increasing by double digits each year like clockwork. Once lockdown came into effect across Europe, daily active users exploded to 75m – a 70% increase in just seven weeks.
In the short term, these figures are obviously non-sustainable. However, it has exposed many new customers to the platform. With some companies intending to retain their work-from-home policies to reduce fixed costs, it’s reasonable to assume that LoopUp will keep many new users.
This assumption is further supported by the firm’s net revenue retention (NRR) rate of 114%. As a reminder, NRR is a measure of how much of the revenue stream is retained after a purchase. A value of 114% means that customers who have previously joined the platform are now spending 14% more than when they first started. An excellent sign of quality and pricing power.
The bottom line — Zoom vs LoopUp
LoopUp is a much smaller business than Zoom. However, it has found a niche segment of the market — expected to be worth $10bn by 2024 — that remains mostly untapped. With a market cap of just over £103m and predicted earnings of £18.4m for 2020, the stock is currently priced at a forecasted price-to-earnings ratio of 5.6. When compared to Zoom’s P/E of over 500, the growth stock looks exceptionally cheap in my eyes.
Zaven Boyrazian owns shares in Zoom. The Motley Fool UK has recommended LoopUp Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.