Zoom's Citi Upgrade: A Tactical Bet on a Post-Skype Leader at a Discount

Citi's move is a clear tactical bet against the grain. The firm upgraded Zoom to Buy from Neutral and set a $106 price target, implying about 24% upside from shares trading in the $85-87 range recently. This is a notable outlier call. The broader analyst consensus, as reflected in the average target, sits at a Moderate Buy with a price target of $93.82. Citi is not just being bullish; it's positioning itself as a contrarian voice with a more aggressive view.

The core of this setup is valuation. Citi sees a market leader trading at what it calls an undemanding valuation (~10x NTM EV/FCF). That multiple is the hook. For a company that has solidified its position beyond the pandemic, a price-to-free-cash-flow multiple in the single digits suggests the market is pricing in significant headwinds or a growth plateau. Citi's thesis appears to be that this discount is excessive, creating a potential mispricing opportunity. The upgrade is a direct challenge to that prevailing low multiple, arguing that Zoom's leadership and cash-generating power deserve better.

The Growth Reality: Deceleration vs. Leadership Narrative

Citi's bullish thesis must reconcile with a clear deceleration in growth. The company's latest results show a market leader scaling, but at a slower pace. For the third quarter of fiscal 2026, Zoom's revenue grew 4.4% year-over-year, beating estimates but marking a notable slowdown from prior periods. This is the fundamental tension: leadership in a mature market versus the expectation of high-growth expansion.

The split between enterprise and online segments highlights this maturity trend. While enterprise revenue grew 6.1% to $741.4 million, representing the higher-margin core, online revenue growth slowed to just 2% to $488.4 million. This divergence suggests the company is successfully migrating customers to its more profitable enterprise model, but it also underscores that the broader online market is becoming saturated. The online segment's growth rate is a key indicator of market saturation, a reality that typically pressures valuation multiples.

Looking forward, the guidance implies a similar trajectory. For the full fiscal year, Zoom expects earnings per share in the range of $5.95 to $5.97. This implies a growth rate of roughly 2.9% for the current fiscal year, which is below the consensus estimate of about $2.93 EPS for the current fiscal year. This guidance, which is essentially flat to slightly positive growth, sets a low bar. It signals that management sees little acceleration ahead, which is the precise environment where a low valuation multiple becomes rational.

The bottom line is that Citi's upgrade is a bet that the market is over-penalizing Zoom for this deceleration. The company is still profitable and generating strong cash flow, but its growth story has shifted from explosive expansion to steady, mature scaling. The tactical opportunity hinges on whether investors will eventually reward that stability and cash generation at a higher multiple, or continue to price in the end of the high-growth era.

The Risk/Reward Setup: Catalysts and Watchpoints

The tactical trade now hinges on a single, near-term catalyst: the next earnings report, expected on February 23, 2026. This release will be the first real test of whether Zoom's growth deceleration is stabilizing or worsening. The market's reaction to that data will determine if the valuation discount Citi is betting on is about to narrow-or if skepticism is justified.

The immediate risk is clear. Since the last earnings beat, shares have added about 1% in a month, underperforming the broader market. That muted move signals a skeptical investor base that is waiting for concrete proof that the growth narrative isn't dead. The stock's recent price action suggests the market is pricing in the low-growth trajectory implied by the company's own guidance, not the potential for a multiple expansion Citi is advocating.

Therefore, the setup is binary. The tactical opportunity exists only if the valuation discount persists into the next report. If Zoom beats the consensus estimate of $0.95 EPS for the quarter ending January 31, 2026, and provides any hint of stabilization in online growth or enterprise expansion, it could force a reassessment of the low multiple. Conversely, if results disappoint or guidance is lowered, the stock's ~1% gain since last earnings would look like a dead cat bounce, and the low multiple would be fully justified.

The bottom line is that this upgrade is a bet on a catalyst that hasn't happened yet. The trade requires patience for the February report, with the watchpoint being whether management can demonstrate that its leadership and cash flow are worth more than the market is currently offering.