Confidence in ZM

I know ZM is a core holding for many here. I am wondering if everyone is still confident about this upcoming quarterly report? I have been seeing more articles about it being over extended and due for a major pull back. I have not seen any concern over it having a struggle, but I have also seen some articles about competition from a new WhatsApp desktop function and other new competitors. It doesn’t seem too threatening since Zoom is a vowel now. Yet, I am a little cautious as I have never owned a stock that went straight up like this before, so any thoughts appreciated.

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I have also seen some articles about competition from a new WhatsApp desktop function and other new competitors. It doesn’t seem too threatening since Zoom is a vowel now.

A, E, I, O, U sometimes Y and now Zoom?

I think you meant a “verb.”

Zoom has been so successful that there will be lots of competitors (each thinking, if I can only get 2 or 3% market share it will be a lot). All the competitors have to try and overcome the mindshare that Zoom now has. No one video conferences anymore, they Zoom or do a Zoom call.
Any and every competitor has to be better than Zoom in audio/video quality or ease of use or price or something. Very hard to so since most A/V problems are really bandwidth problems.
Hard to be easier to use since Zoom is easy. Hard to beat on price since Zoom is free for basic use and pretty low cost for those that must have it.
And the competitors have to pay for advertising while Zoom gets free advertising everywhere and it is very easy to remember the name.

Mike

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And who will sign up with a small competitor when 95% of the people he/she wants to video with have Zoom on their computer already, but don’t have that competitor on their computer?
Saul

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It doesn’t seem too threatening since Zoom is a vowel now.

“Z” is the last consonant.

Yet, I am a little cautious as I have never owned a stock that went straight up like this before, so any thoughts appreciated.

It’s normal to get butterflies in the stomach when stocks go down and the best relief is to look at the big picture. Here is ZM’s current picture:

ZM: https://softwaretimes.com/pics/zm-10-23-2020.gif

You don’t have to be a chart reader to see that this is not a scary picture. When a drop is on high volume than it might be worrisome. This is just normal profit taking. By contrast here is a scary picture

FSLY: https://softwaretimes.com/pics/fsly-10-23-2020.gif

look at the big gap down on huge volume, some six times the normal volume.

I have not seen any concern over it having a struggle, but I have also seen some articles about competition from a new WhatsApp desktop function and other new competitors. It doesn’t seem too threatening since Zoom is a vowel now.

You said it yourself, “It doesn’t seem too threatening.” Ask yourself, has the story changed? Someone commenting on a new competitor does not amount to a threat, it’s expected that others want to get on the bandwagon. From wanting to dislodging the leader is quite a stretch.

Denny Schlesinger

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I have owned ZM since late 2019 and added multiple times along the way. It is my largest holding now. I think it is a very strong business with a lot of optionality going forward. I don’t think my confidence is waning, but I do wonder how much of a haircut we will all take once a path forward becomes clear with regard to COVID-19, such as a vaccine or multiple ones, or better therapeutics. It will be interesting to see what happens to revenue growth at that point for ZM.

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A couple of points:

  1. Zoomtopia only strengthened my conviction in Zoom and showed why it is a model for culture, mission, optionality, and leadership beyond just the incredible numbers of the past few quarters. The collaboration with leaders like Ariana Huffington, Jensen Huang, and Ray Dalio really highlighted for me why Eric Yuan is truly a visionary. All of the new features and services truly show that Zoom is doing everything it can to take advantage of the moment and build a first class platform. ZoomAps, OnZoom, the integration with Slack, etc were really exciting.

  2. A vaccine will likely not be a binary event. I listened to an interview with Dr. Fauci yesterday and he stated that the road back to normalcy will be a long, slow path. He estimates that a vaccine will only work on 70% of folks and that many will refuse to take it. He believes social distancing restrictions will be lifted eventually but it will be a slow path and most of us will be wearing masks late into 2021 or even into 2022. This is important to think about for stocks like Zoom, Peloton, etc. I believe the shift to WFH/hybrid is permanent and we will likely have another year or so before most of us office dwellers can even think about hybrid work environments.

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FoolishJeff -

100% agree with your points.

Zoom has amazing optionality and the post covid world is hybrid. The platform aspect is very intriguing and the potential here is huge.

I’ll probably play around with simple models (key being simple given Zoom’s huge growth rates) to see what that platform potential will be, but really, this is a hold for me, and I’ll even look to add at opportune times.

-Purplemist

When I saw the many (TMF) recommendations for Zoom in May, I didn’t buy. I had just barely started investing on May 4th, and I was even scared of Tesla (I bought a single share since it was a BBN, how much I regret not being ready then and there for more… ). My own company put everyone to home office and they banned usage of Zoom explicitly, because of security concerns, They even shun it now. This impacted my decision-making and I kept resisting Zoom. What a small place ones personal world can be, right?

I now do own a small position of Zoom, and my cost basis is in the 520s. Doesn’t feel very comfortable at all. Feels terrible to add more to it now, too. Gives me some stomach problems, really. But I keep seeing how the company, Zoom, is quickly becoming so much more than what anybody else is offering. It doesn’t make it any easier that Zoom is not so much part of “my” professional life, since other, clearly inferior (I see that now!) solutions are being used.

And I thought to myself, since so many here keep holding Zoom (and TMF kept recommending, although that seems to have stopped now), there must be a good reason for it, since it would make no sense to hold a position (no matter how low your cost basis) if Zoom were done innovating and just waiting for the pandemic to end. Eventually, tons of customers must be waiting to finally end using video conferencing and going back to doing things in person, right? I’m convinced that the future will be different from before and video conferencing, pardon me, “Zooming”, will be a large part of business meetings. Hopefully even my company will switch to using Zoom, especially after the pandemic, since “Zooming” really seems to be the next best thing to meeting in person, privately as well as professionally.

But it is so dang difficult to get myself to make Zoom a larger part of my portfolio. Please provide perspective, is this a case where “averaging up” into it is the Foolish thing to do? T. Gardner believes Zoom to become a 1T company, but of course it could drop heavily on the way.

One strategy that could work for me could be just regularly adding a bit over time to it. Any other perspectives? Need I not bother adding to Zoom now? Why are you holding it even now?

I know that the best of you will be able to react quickly and exit prior to any big post-pandemic sell-offs, but I would probably be holding all the way through, which feels much more uncomfortable since there is no margin of error left for me at this cost basis (imagine “losing” money on Zoom!).

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But it is so dang difficult to get myself to make Zoom a larger part of my portfolio. Please provide perspective, is this a case where “averaging up” into it is the Foolish thing to do? T. Gardner believes Zoom to become a 1T company, but of course it could drop heavily on the way.
One strategy that could work for me could be just regularly adding a bit over time to it. Any other perspectives? Need I not bother adding to Zoom now? Why are you holding it even now?

Hi RevTK,

Let me add my perspective. I understand your concerns and reluctance to add to Zoom in the 520’s. This is because I had felt similarly when adding in the $200’s, when I thought I was late to the game. So I dipped my toe in and averaged in slowly, mostly between Q1-2. Adding at $260 I felt like I was adding at a premium, then in a dip to $360 after Q2 earnings it felt like adding on the cheap. It is the psychology of price anchoring and adding at all time highs. It intrinsically feels like you are paying at a premium compared to everyone else.

What you need to ask yourself, is what is YOUR conviction in Zoom? Don’t let the share price factor into your thinking too much. There are many, many people who think Zoom is overvalued right now, even valued members of this board, but there were equally as many who thought that at $150 or $250.

There are reasons why the stock price COULD plummet in the coming months, the most obvious being vaccine news and a sector rotation.

My best advice would to understand your own conviction, and to average into that position as you see fit. If you feel like you would like 10% in Zoom, average into a 10% position. If holding it makes you feel ‘sick to the stomach’ that would suggest your conviction is not particularly high. Ask yourself why. Learn to detach conviction from a share price, and put it into the company instead. You will feel better.

As for myself, I have utter conviction in Zoom right now, and have added to it as recently as last week in the $550’s (when reallocating from Fastly). It is by far my largest position. And why would anyone have any less conviction in Zoom today than after Q2 earnings? That doesn’t make sense to me - what has changed for the company prospects in the last 2 months, from the information we know? Only favourable things, I would say.

Another way of looking at it, you choosing to start a position at $520 is really the same decision as I’m making holding my position at $520. The only difference, is the psychology behind it.

My conviction has only GROWN in the last 2 months. I see the continuation of astounding growth for at least the next 2 quarters, and very likely Q121 too. Beyond that? And what about the argument that Zoom’s valuation is taking into account high growth well beyond the next few quarters? Zoomtopia has given me fresh conviction into how Zoom will maintain a high enough growth rate to grow into its valuation. I will post a detailed analysis why, and why Zoom is still my largest position, soon.

Respectfully, it doesn’t matter what T Gardner thinks. What matters is what YOU think. If you too think that Zoom will one day be a $1 trillion company, then it will make little difference if you buy shares at $520, $450 or $600.

No one can tell you whether Zoom is fair value at $520, you need to decide that for yourself. At $250, I had a similar decision to make. I only wish now that I had acted on my conviction sooner.

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Thank you, AThinkingFool, your perspective was tremendously helpful to me. And I have to add that, right now my portfolio is not exactly the biggest size, as I have only gotten started with saving and investing coming out of a PhD and working my first job since the beginning of the year. It thus is a little less important where I put my money right now and more important how I will keep adding monthly to it, consistently.

What is a “large” position (e.g. 5000$ to 10000$ in a single stock) to me today is probably laughable to anyone here, but still matters to me getting started. For now, my monthly additions still meaningfully shape my portfolio, and I hope that this will become less and less the case over time as my portfolio hopefully grows.

It’s my learning experience, hopefully without big mistakes, but with some mistakes along the way for sure. I think I will simply continue to learn more and follow my best companies over time, while keeping at adding to my positions over time.

Whenever I bring up the topic of investing, even just passive “safe” index funds or dividend aristocrats, nobody in my circle would even dare to think about it. Now think about how it feels doing the “growth” investing thing. Everyone says that I am insane. That things are overvalued and the market is going to crash etc…

I know that the market will “crash” eventually, just not when, and so I just don’t care about that. The only thing I am doing is averaging into positions with my current best ideas. As written before, upon recently discovering this board, I went from 45+ to just 15 positions, radically. Might cost me in terms of taxes and maybe some of those closed positions would have been good, but I value the learning experience a lot more than that.

I might be late for dinner with ZM and many others, but I will for sure not pass up on the leftover food on the table.

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“Another way of looking at it, you choosing to start a position at $520 is really the same decision as I’m making holding my position at $520. The only difference, is the psychology behind it.”
-A Thinking Fool

Thanks for this eye-opening insight. Very helpful as I lament not learning more earlier and looking at my “paltry” 25% growth this year compared to many of you.

-Dudebro

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But it is so dang difficult to get myself to make Zoom a larger part of my portfolio. Please provide perspective, is this a case where “averaging up” into it is the Foolish thing to do? T. Gardner believes Zoom to become a 1T company, but of course it could drop heavily on the way.

One strategy that could work for me could be just regularly adding a bit over time to it. Any other perspectives? Need I not bother adding to Zoom now? Why are you holding it even now?

Lets assume for the moment that T Gardner is correct and that Zoom grows to 1T as he said sometime in the next 10 years. As someone on this board pointed out that represents 28% compound growth (or whatever-- it doesn’t matter to the point) Now ask yourself these few questions.

What is my conviction in the future growth prospect for ZM?

Given this level of conviction what rank do I assign a 28% grower? (See for example muji posts on defining conviction ranking of stocks by Tier. Others have posted helpful ideas on the subject.)

What percent of my portfolio do I assign to stocks in this Tier? 5%,10% , 20% or more ?

Then act accordingly and don’t look back.

My personal view is that one should build a position in stages. You need to figure out how many. FWIW I have made about 15 separate purchases of ZM. So far so good. But for some other stocks it has worked out differently
I hope this is a helpful viewpoint

cheers

arnie

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as I lament not learning more earlier and looking at my “paltry” 25% growth this year compared to many of you.

This is super common, and I’ll readily admit to doing it myself when I first arrived. Don’t do it. Investing is a very individual journey based on goals, timeline and temperament. Saul’s is simply a place to collectively check in and share ideas while we each walk our own path. I’ve found that perspective makes a huge difference.

I wrote something longer about this topic here if you’re interested. I didn’t post it here originally because it’s slightly OT: https://thestocknovice.substack.com/p/darn-i-wish-i-had-so-a…

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What is a “large” position (e.g. 5000$ to 10000$ in a single stock) to me today is probably laughable to anyone here, but still matters to me getting started. For now, my monthly additions still meaningfully shape my portfolio, and I hope that this will become less and less the case over time as my portfolio hopefully grows. – RevTK

Don’t be concerned about the relative size of your portfolio. Most of us started with very little. I started with ~$400… and it was all I had from mowing lawns and gifts (I was 12). I added over time, the portfolio also grew on it’s own… and over time my perspective changed on “large”. It will change with you as well. After your portfolio gets large, remember the next group of little guys and help them too. :slight_smile:

I know that the market will “crash” eventually, just not when, and so I just don’t care about that.

Be prepared for your emotions to be wrenched when your stocks drop, despite your intellectual understanding of volatility. Most of us have found that it takes time and experience to deal well with drops… even though we know it’s coming. Maybe it’ll be easier for you. It can still affect me… after 55 years of investing. Be wary. Be strong in your convictions.

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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As corrected by a different member, Zoom has become a verb.

What does it mean when a product becomes a verb? If you have a question, you google it (lower case), you don’t bing it, or any other alternative. If you have video conference (be it one-on-one or involving multiple people), you zoom, you don’t webex or any other alternative. OK, Webex ain’t dead yet (as expressed in Monty Python and the Holy Grail), but it’s in the cart shall we say.

When a product becomes a verb, it is the default for the primary functionality of that product. It doesn’t make any difference what the competition might do. Microsoft thought they could unseat Google with Bing. I couldn’t tell you exactly what the basis for this thinking might have been. Most certainly, they couldn’t beat them on price (free). Take note, a highly functional version of Zoom is available for free. Ease of use? Reliability? I won’t bother to list all the parameters you might look at. For a product to become a verb, all the significant ones have to be satisfied.

But the closing factor is the network effect. When a given product becomes the default, a verb, it means the vast majority of people and/or companies depending on the target market are already using it. That’s an incredibly difficult market position to upset. Zoom has a ton of competition. It most certainly was not the first product to market, Webex has been around for ages (in the IT world, an age is quite different than it is for archeology). In fact, Eric Yuan, CEO of Zoom had been the Webex product manager at Cisco prior to creating Zoom. It was that experience that taught him all the pitfalls and problems he had to avoid with Zoom.

So your question might be, if virtually everyone is already using it, where’s the future growth going to come from? That’s a reasonable question.

You needn’t dig too deep to find the answer. First, there’s the potential conversion of free users to paying users. As usage expands, many customers will find themselves needing the additional functionality provided by the upgrade. It’s extraordinarily unlikely that they would abandon Zoom for a competitor when this threshold is crossed. There’s the potential for monetization of “free” customers. I don’t have a clue what form this might take, I’m just saying it’s a potential. There’s the ability to “expand” the product base to associated products like ZoomPhone and the other products they recently announced along with others that are unannounced but under development. You can bet that Jeff Lawson, CEO of Twilio has his eyes on this.

As for me, I’m not buying Zoom. But that’s only because it is already about 30% of my portfolio. I had a “rule” that no position shall be larger than 18% of my portfolio. That number came out of thin air. There’s nothing magical about 18%. Zoom got to be 30% largely by growth rather than acquisition. I just didn’t trim as it grew because I couldn’t see a better place for the money.

I hope that helps. You are prudent to be cautious. We should all be cautious investors. But don’t let caution be an excuse for irrational fear. I’ve been down that road as well. It’s a dead end.

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Whenever I bring up the topic of investing, even just passive “safe” index funds or dividend aristocrats, nobody in my circle would even dare to think about it. Now think about how it feels doing the “growth” investing thing. Everyone says that I am insane. That things are overvalued and the market is going to crash etc…

This is precisely why I don’t discuss investing with most people! I find that investing is really a dialogue with oneself: what do I want to do? how much risk can I tolerate? in which companies do I have a high conviction (or won’t touch with a ten foot pole)? Then begin and adjust from there. Personally, it’s easier for me to do this without inviting other people’s fear or biases into my brain (there is enough in there already).

When I exited index funds and started picking stocks 4+ years ago, before I found this board, I was pretty terrified of holding positions that either grew fast or were above the low five figures.

Thank goodness for this board, which I found about 13 months ago. It’s a rare community.

Since 2016, some of my original positions have grown to six figures, while newer ones have also quickly reached that size, which shocks my earlier self (this is why thinking in percentages is much more helpful). There is always some part of me that occasionally freaks out and wants to go the ETF route (nothing wrong with that). And, yet I keep coming back here for inspiration, affirmation, and the chance to learn.

PA67

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There’s a lot of concern about Zoom maybe being over-valued, and about buying it when it has already gone up so much. Well just about everything you look at in the market has been at a lower price some time in the past, and if it hasn’t and it is at an all time low, there is probably a good reason.

With Zoom, as with any company, I guess it’s a question of what you think their prospects are, and do you see any change in their story for the worse. The weekend after Zoom reported the quarter before last, late in May, there were 8 articles on Seeking Alpha. ALL 8 said they were overvalued and you should sell, or at least you shouldn’t buy. Zoom was at $210 or so. Now, five months later, it’s at $511 (after pulling back from $537).

According to a quick glance at the chart, Amazon was once (1997) at $1.50 (split adjusted). When it hit $6 you could say “Wow, it’s quadrupled!”, and at $15 “I’m not going to buy it. It’s up 10 times from where it came out!”.

But now it’s at $3,200 !!! (I’m not saying Zoom will do the same. I’m just saying that just because a stock has gone up a lot doesn’t mean it won’t keep going up).

Saul

A link to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”

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Now, five months later, it’s at $511 (after pulling back from $537).

$537? The all time high was $588.84. I took profits at $574.70 because it grew to over 40% of the portfolio. It’s still over 36%.

Denny Schlesinger

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According to a quick glance at the chart, Amazon was once (1997) at $1.50 (split adjusted). When it hit $6 you could say “Wow, it’s quadrupled!”, and at $15 “I’m not going to buy it. It’s up 10 times from where it came out!”.

But now it’s at $3,200 !!! (I’m not saying Zoom will do the same. I’m just saying that just because a stock has gone up a lot doesn’t mean it won’t keep going up).

Although to be fair, just after the above data points, during the dot-com bust AMZN had a peak close of $106.69 on December 10th, 1999, and closed at $5.97(!) on September 28th, 2001.

If the same thing were to happen to ZM, it would undergo a precipitous decline from its closing high of $568.34 on October 19th, to a bottom of $31.80 on August 1st, 2022. Ouch.

(AMZN chart during dot com) http://schrts.co/CwkrHzPQ

Tails

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But DotCom was a lot about buying into the potential things those internet companies might do in the future, while Zoom is doing a lot of it here and right now, very successfully. Obviously future performance expectations are factored in, more or less effectively.

Why would anybody here have any of these companies discussed here in their portfolio still, if they didn’t believe these companies/businesses still had lots of room to grow much more valuable over time? You would have switched them out for a better, faster growing idea already.

Buying right now and holding it right now is essentially the same thing, just not psychologically, as noted by others before. To be fair, there are a few differences such as waiting to buy now for a price drop (based on hope, market timing) versus selling off a bit of an established position now to re-enter on a dip (I wouldn’t do that), but there are tax implications at play, depending on the situation.

Really looking forward to some timely portfolio updates, preferably with verbose reasoning behind decisions, so I can learn the most from that.

I currently lament that maximum success in terms of returns depends on two things, identifying great businesses and then WHEN to buy and sell them (market timing). The second part is incredibly difficult to do, and the most probable answer is “as soon as possible”.
I will almost always fail with the market timing part, so I might as well just buy whatever I find to be my best ideas / the best businesses around.

If Zoom happens to be one of the above best businesses, why not buy it right now irrespective of stock price? At least averaging into it over time as long as the story holds.

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