ZM in today's WSJ

Investment Analysis Clubs Saul’s Investing Discussions
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There is a very interesting article about Zoom in today’s WSJ, & I’m not sure what conclusion to draw from it. This board has examined ZM from many directions, and I tend to agree with most that Zoom’s problems are temporary.

But this article brings in yet another angle. Bear with me a minute. The Department of Education has asked the University of Texas System for all records documenting its dealings with the Chinese Wuhan lab under investigation, as well as with Huawei, etc. Apparently a large amount of money is involved, and there’s a question of whether the UT system has reported all the money/its dealings with China.

Now the interesting part.

“The Education Department is also seeking documents related to any university system contracts or gifts from Eric Yuan, a US citizen, who is the chief executive officer of Zoom…”. Why? He is not an alumni of UT.

Further,

“US national security officials and independent cybersecurity researchers have raised concerns about Zoom and its reliance on China-based engineering…”. Zoom responds with what we have come to understand… viz Yuan is a US citizen, company is a US publicly traded company, etc.

I find it disconcerting that he was specifically named in this probe. Many technology companies (and top leadership) have “interesting” ties with China. So, is this consequential? I don’t know. But this does insert another dimension… with the potential to look pretty bad. We are living in interesting times.

This excellent board prides itself on its objectivity, at looking at the facts as clearly as possible, and then arriving at informed decisions. Perhaps this new information will be useful.

Breezyday
long ZM

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Interesting Breezyday.

As you allude to in your post; on the very surface, it could appear as if Zoom and Yuan may have been caught up in a broad casting net wherein the article that I read stated: “Information on any gifts received from the Wuhan lab, Chinese companies or individuals such as Zoom CEO Eric Yuan was also requested.”

Where later on the article a Zoom spokesperson states:

“If Zoom is on such a list, it is in error and indicates the authors did not do their homework,” the spokesperson said. "Zoom is an American company, publicly traded on the NASDAQ, with headquarters in California and a founder and CEO who is an American citizen. Zoom is no different than any other U.S. technology company with operations in China, including many of our videoconferencing peers.”

Article I reference is: https://thehill.com/policy/technology/495674-education-depar…

We can not overlook that we are living in world of increased xenophobia and racism towards Asians in a Covid-19 world:

https://www.vox.com/identities/2020/4/21/21221007/anti-asian…

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When reading the article below from CBSAustin in order to get some “local flavor” on the subject, the article indicated that the United States Department of Education is “also” [“also” meaning in addition to the Wuhan Institute of Virology and Zoom]requesting documentation of all gifts, donations, contracts and emails from the following entities:

Referenced Article from CBSAustin.com: https://cbsaustin.com/news/local/us-dept-of-ed-requests-ut-r…

BGp Inc.
Educational Advisors Deda Co. Ltd.
Xi’an Jintong University
University of Beijing
University of Shanghai
Dalian Auto Tech. Inc.
Huawei Technologies Co. Ltd.
Tafel New Energy Tech Co. Ltd.
Zhejiang Normal University
ATEC Shenzhen Expressway Engineering
Huawei Software Technologies Co. Ltd.
Beijing Normal University
Nanjing University
China University of Mining and Technology
Chengdu Technological University
Sichuan University
Southwest Jiaotong University
Jilin University
South China University of Technology
China University of Petroleum
Southwest Petroleum University
Shandong University of Science and Technology
The Communist Party of China

I guess we would have to go through this list to see if any of these entities that are part of the probe are also outside of China and are U.S. based companies and U.S. citizens.

Harley

Credit to CBSAustin.com for compiling the list of entities referenced above.

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Well, you’ve made some good points, Harley, & perhaps you’re right. But the WSJ piece didn’t imply this was a “broad casting net”. No other specific person was mentioned except Yuan, and no other company. But yes… the company does have a VERY HIGH profile right now.

Forgive me… but the “___ is no different than other ___, who does the same thing” defense never got me much sympathy with my parents!!! :slight_smile:

Understood. But isn’t the bigger problem that a number of our great universities have had unreported relationships with China for many years. Why hide it? The head of the chemistry department at Harvard was recently indicted for such an unreported (financial) relationship. Key technologies have been taken out of research labs in hidden disc drives, etc. This isn’t a racist thing, is it?

Back to Zoom. Perhaps this is much ado about nothing. Perhaps not. But it just doesn’t look good right now.

breezyday

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Back to Zoom. Perhaps this is much ado about nothing.
Perhaps not. But it just doesn’t look good right now.

Good morning, breezyday.

Every time I think this ongoing collection of Zoom stories can’t get any more ridiculous, some giant crock of smelly stuff like this comes up.

If your target objective is short-term trading gains (nothing wrong with that…), then yes, it doesn’t look good.

Personally I’m hoping ZM opens on Monday at like $110 or $120 so I can add some.

Eric (under house arrest in NH, long ZM, small position)

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Breezyday…

"But the WSJ piece didn’t imply this was a “broad casting net”.

You are correct, but the FACTS are that the United States Department of Education has cast a fairly broad net including, as I stated above, the following entities as well as the additional entities I provide below:

Zoom Video Communications
Eric Yuan
Wuhan Institute of Virology
BGp Inc.
Educational Advisors Deda Co. Ltd.
Xi’an Jintong University
University of Beijing
University of Shanghai
Dalian Auto Tech. Inc.
Huawei Technologies Co. Ltd.
Tafel New Energy Tech Co. Ltd.
Zhejiang Normal University
ATEC Shenzhen Expressway Engineering
Huawei Software Technologies Co. Ltd.
Beijing Normal University
Nanjing University
China University of Mining and Technology
Chengdu Technological University
Sichuan University
Southwest Jiaotong University
Jilin University
South China University of Technology
China University of Petroleum
Southwest Petroleum University
Shandong University of Science and Technology
The Communist Party of China (its agents, employees, representatives, and instrumentalities)
The Communist Party of China’s Central Committee
The Communist Party of China’s Central Office
The Communist Party of China’s Politburo Standing Committee
The Communist Party of China’s General Office of the Central Military Commission
The Communist Party of China’s Chinese Ministry of Education
The Communist Party of China’s Chinese Ministry of Science and Technology
The Communist Party of China’s People’s Liberation Army
The Communist Party of China’s Chinese Ministry of State Security
The Communist Party of China’s Chinese Ministry of Industry and Information Technology
The Communist Party of China’s Chinese Ministry of Foreign Affairs
The Communist Party of China’s Chinese Ministry of National Defense
The Communist Party of China’s Central Bank of the People’s Republic of China
AND Any People’s Republic of China province, autonomous region, or municipality

I would say that qualifies as a broad casting net__, that includes NO OTHER entity or individual outside of the People’s Republic of China other than Eric Yuan and Zoom Video Communications.__

“No other specific person was mentioned except Yuan, and no other company. But yes… the company does have a VERY HIGH profile right now.”

This is my point Breezy. Why is Eric Yuan, a U.S. citizen, and Zoom, a U.S. company, being singled out in this investigation if the investigation seeks to, according to the letter submitted to the University of Texas by the U.S. Department of Education states according to CBSAustin.com, get to the bottom of the following:

“Between June 6, 2014, and June 3, 2019, UT reported approximately twenty-four contracts with various Chinese state-owned universities and ten contracts with Huawei Technologies, all purportedly worth a reported total of $12,987,896. It is not clear, however, whether UT has in fact reported all gifts from or contracts with or relating to the Wuhan MCL, the Wuhan Institute of Virology, and/or all other foreign sources, including agents and instrumentalities of the government of the Peoples’ Republic of China.”

Full Article provided here and credit given to CBSAustin.com: https://cbsaustin.com/news/local/us-dept-of-ed-requests-ut-r…

In those “catch basins” described in the USDOE letter as: a.) Various Chinese State Owned Universities, b.) Huawei Technologies, c.) Wuhan MCL, d.) Wuhan Institute of Virology, e.) all other foreign sources, f.) agents and instrumentalities of the government of the Peoples’ Republic of China…where does Eric Yuan fit? Where does Zoom Video Communications fit?

Am I now supposed to assume through deductively valid reasoning of the “catch basins” as enumerated above that Eric Yuan and/or Zoom Video Communications is “f.)” agents and instrumentalities of the government of the Peoples’ Republic of China? That would be the only catch basin they would fit into.

Or, am I supposed to assume or deduce that somebody at the USDOE figures that Eric Yuan and Zoom Video Communications are “e.)” foreign sources, because he was born in China, appears to be Chinese and speaks broken English with a heavy Chinese accent?..is that what makes him a target of the investigation?

So, it breaks down like this:

1. Either Eric Yuan and Zoom are “agents” and “instrumentalities” of the Chinese government, or
2. Somebody at USDOE is a complete knucklehead and screwed up, or
3. Somebody at USDOE is maybe (not definitely) a xenophobe and “assumed” that Eric Yuan was a dangerous Chinese national and his company is a foreign company based in China.

I betting on the fact that it is a little bit of #2 and a lot of #3 and this whole thing smells to me like good 'ol fashion Number 2.

Harley

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1. Either Eric Yuan and Zoom are “agents” and “instrumentalities” of the Chinese government, or
2. Somebody at USDOE is a complete knucklehead and screwed up, or
3. Somebody at USDOE is maybe (not definitely) a xenophobe and “assumed” that Eric Yuan was a dangerous Chinese national and his company is a foreign company based in China.

I betting on the fact that it is a little bit of #2 and a lot of #3 and this whole thing smells to me like good 'ol fashion Number 2.

Hi Harley,
I agree with you, but you omitted two other possibilities:

  1. This is a part of the organized “pile-on” attack by one or more of Zoom’s competitors who influenced the DOE to throw Zoom into this, knowing that nothing will come of it, but it puts a bad odor on Zoom again.
  2. Someone high up in the Federal government who doesn’t like Chinese people may have told the head of the DOE to “Make sure you check out that ‘Chinaman’ who is the head of that Zoom company.”

Saul

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I’ll say one more thing (well, maybe two) and leave it at that.

Saul and Harley… I’m betting that the truth lies in what you have both posted. This WSJ article just struck me as incredibly odd to single out a specific person (and a specific company) like it did, although thanks to Harley for providing more context. The “bad odor” is not comfortable to experience, especially for a company with such strong numbers.

Personally, I hope ZM drops on Monday. I’m long the stock, have a large position, & would love to buy more.

Breezyday

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EPNH>> Every time I think this ongoing collection of Zoom stories can’t get any
EPNH>> more ridiculous, some giant crock of smelly stuff like this comes up.

It occurs to me that that statement of mine could have been misinterpreted.

I didn’t mean that to refer to anything anyone here has posted on this board, all of which I appreciate more than you know; rather it refers to the string of BS stories that has appeared in the media about Zoom lately, each one more ridiculous than the previous.

My apologies if it was interpreted any other way.

Eric in NH (long ZM, hoping for a drop to, say, $110 on Monday so I can add some)

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2. Somebody at USDOE is a complete knucklehead and screwed up, or
3. Somebody at USDOE is maybe (not definitely) a xenophobe and “assumed” that Eric Yuan was a dangerous Chinese national and his company is a foreign company based in China.

I betting on the fact that it is a little bit of #2 and a lot of #3 and this whole thing smells to me like good 'ol fashion Number 2.

Harley

Harley my first reaction was identical to yours. But on reflection consider the recent events. ZM had security issues among the population of free users. One of these had to do with routing some data thru a Chinese server . ZM had a bunch of adverse publicity. Even so usage has grown to 300 million people (persons? users?? attendees? whatever) Google ,Facebook and I believe Microsoft all announced moves to offer competitive options which aren’t really competitive enough. They are all deeply concerned obviously maybe a bit fearful too. We’ve had interminable discussions about hit pieces and hit men and about ambulance chasers.

Yuan is American but he looks Chinese and is a threat to certain business interests. What are the chances someone is out to get him? Pretty good I’d say. A gov’t investigation is a pretty good way to go about it.They are easy to start in this administration. Perhaps one earns advancement by being anti China.( Although some of that is long overdue.)

So I doubt whether the cause of all this is some knucklehead. I worked in the Federal gov’t in a senior technical position for 8 years starting in the Nixon administration. The administrators and such were all pretty savvy and probably still are. Now as then I don’t believe knuckleheads are responsible there are few . But now as then there may be some who are corrupt.

draj pretty long ZM

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It looks to my paranoid eyes as if some large company that is feeling seriously threatened by Zoom has been trying very hard to assassinate it, first by financing an amazing series of simultaneous attacks on its security flaws (not so different than the flaws of its competitors, which don’t even get mentioned by the attackers), then that ridiculous attack because Zoom had corrected a mistaken “daily users” to the correct “daily participants”, and now finally by this preposterous lumping Zoom in with a lot of Chinese companies. (I would say this latter could easily have been attained by the large threatened company in question making an appropriately large campaign contribution, among other ways).

Saul

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I agree with Saul. I hinted at it in another thread and included this link to an article written by the same author that caused such a stir for Zoom on Thursday. I’m pretty sure it’s about the Company that Saul is referring to.

https://www.theverge.com/2020/3/19/21186918/microsoft-teams-…

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The media is treating Eric Yuan as if he’s Donald Trump. Very despicable if you ask me. Hence why I only go to this board and Youtube for quality substance. Long ZM

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Breezy day,

Neither Zoom or Yuan has contributed any money to the university— according to Yuan. For Yuanto lie about this would be stupid because it is so easy to check. Also, don’t forget that Trump kept trying to tie Crowdstrike to some missing server in the Ukraine. I saw this as no different.

Gordon

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It looks to my paranoid eyes as if some large company that is feeling seriously threatened by Zoom has been trying very hard to assassinate it, first by financing an amazing series of simultaneous attacks on its security flaws (not so different than the flaws of its competitors, which don’t even get mentioned by the attackers), then that ridiculous attack because Zoom had corrected a mistaken “daily users” to the correct “daily participants”, and now finally by this preposterous lumping Zoom in with a lot of Chinese companies. (I would say this latter could easily have been attained by the large threatened company in question making an appropriately large campaign contribution, among other ways).

Saul

Guys, IMO this isn’t a big deal nor is it an evil plot. Quite simply the motivation for the writer is eyeballs and click-throughs. By mentioning Zoom or Yuan he is more likely (and more easily) to get that than any other way. That is usually the reason you will see “pile ons.”

So when you ask yourself “how come everyone is picking on my company??” The answer is that.

Take care.

Jeb

Probably time to end this thread. :wink:

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To reiterate what people may already be aware of, most “journalists” today are not what they used to be. They are heavily reliant on PR firms to get most of their content. They polish PR pieces. In the past, I was involved with several high profile cases and was shocked by the whole concept. Most corporations nowadays have sophisticated PR departments to monitor, mitigate and push the media. Most recently, this can be seen in the whole Russiagate drama (regardless of your political persuasion). People leak, do “background” and push an agenda. Once you understand this and that “journalists” do not do investigative reporting any more, it is easy to spot. The deadlines are too tight, social media moves to fast, the news cycle is highly accelerated, bad stories (fake news) are rampant and do not have the integrity consequences that they once did. Journalists are publishing canned PR pitches for instant click bait and for financial reasons.

Clearly, the ZM news was and is a PR push by someone. Competitor? Powerful short seller? Potential buyer, etc? Before (and for other reasons), I speculated on the ZM board that it was a potential buyer pushing the PR. I think now I agree that it is more likely a powerful competitor who understands the effectiveness of negative PR.

When I was involved in my first high profile case with an onslaught of negative PR, we were caught flat footed. We never expected the onslaught of negative (and predominately fake) news stories. We needed to quickly “PR up”. We hired a PR firm and got to work. We pushed back hard on the bad PR (lots of the initial damage was already done and unfortunately created a strong impression). We also then started pushing our own PR.

So, my big worry here with ZM is not so much the substance of the stories. I think they should be fully ramping up their own PR machine and fighting back. Journalists are not going to get the story right on their own. Is the CEO really the best spokesman for the company on the security issues? They should have their top security person (from a media presence anyway) out on the circuit doing tons of interviews. ZM needs to be pushing their own PR both defensive and offensive. Every video system has security weaknesses - where are the negative stories on ZM’s competitors. I think ZM got caught flatfooted. I think they were a bit naive on this front. They need to step up to play against the big boys.

Mike

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Guys, IMO this isn’t a big deal nor is it an evil plot. Quite simply the motivation for the writer is eyeballs and click-throughs. By mentioning Zoom or Yuan he is more likely (and more easily) to get that than any other way. That is usually the reason you will see “pile ons.”

So when you ask yourself “how come everyone is picking on my company??” The answer is that.

You are too kind! The market is populated by various kinds of animals, bulls, bears, pigs, and scavengers to name a few. Have you not seen the ambulance chaser headlines? Here are two:

SHAREHOLDER ALERT: Pomerantz Law Firm Reminds Shareholders with Losses on their Investment in Zoom Video Communications, Inc. of Class Action Lawsuit and Upcoming Deadline – ZM

SHAREHOLDER ALERT BY FORMER LOUISIANA ATTORNEY GENERAL: KSF REMINDS FITB, I, SERV, ZM INVESTORS of Lead Plaintiff Deadline in Class Action Lawsuits

These scavengers and bear raiders have well honed methods to profit from mishaps in the market and that includes spreading FUD. Their methods are effective and can last a long time. I’m very bullish on Zoom and other investments that are benefitting from the pandemic but I’m unsure of the short term whiplash these stocks will endure. Take a look at my Friday post at NPI:

I’ve not changed my mind, I still think that Zoom and Teladoc are going to be two of the biggest beneficiaries of the new covid induced lifestyle. WFH has been in the works for at least three decades. I started to invest online with E-Trade before they invented the WWW.

https://discussion.fool.com/i-sold-all-zm-to-me-it-looks-like-it…

Denny Schlesinger

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draj

“So I doubt whether the cause of all this is some knucklehead. I worked in the Federal gov’t in a senior technical position for 8 years starting in the Nixon administration. The administrators and such were all pretty savvy and probably still are. Now as then I don’t believe knuckleheads are responsible there are few . But now as then there may be some who are corrupt.”

draj…thanks for the follow-up. I hope you and others know that I meant no disrespect to federal workers with the “knucklehead” reference. The use of that term was used in a manner in which I was giving DOE an “out” or the benefit of the doubt that they jumped too quickly to conclusions that Eric Yuan and Zoom both originated out of the People’s Republic of China.

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I’m hoping ZM opens on Monday at like $110 or $120 so I can add some.

Hmmm… guess not… (~)

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Hi everyone, I have enjoyed on occasion reading your posts and have been trying to find a way to meaningfully contribute in a way that helps everyone. I have been following the Zoom story closely both from a growth perspective but also from a risk perspective. I spent over 20 yrs on Wall Street in market risk management for global hedge fund portfolios. My job has been to come up with all the things that can go wrong so that we know we thought thru all the aspects of our investments and managed the risks we were not comfortable with.

That is perhaps where I can contribute since all your portfolios are highly concentrated. I feel like a good investments are those where one can think thru all the things that can go wrong and feel comfortable with them. That is why I’m posting here on this topic.

In risk management, the two hardest risks to wrap one’s head around are black swans… risks that come out of the blue (they never do, you always have months to prepare just like with this virus) but also risks that have to do with perhaps the most irrational part of the population - politicians. Here too, one has plenty of time to prepare if one follows the flow of events. Black swans can destroy companies, usually because they have high leverage (whether financial or operating). Politics can destroy companies regardless of their situation.

While it may not be completely apparent, politics, and especially geopolitics have had significant impact on few of the companies that are often mentioned on this board. Crowdstrike would not be as successful had it not been for the foreign industrial espionage and foreign election meddling and resulting focus they received by our politicians.

Likewise, Zoom may not be as successful because of the massive anti China sentiment that is building up all around the developed world. I am not here to poo poo Zoom. I use it daily to take various classes but it is hard to miss the attention that the company receives weekly by various governments around the world. First Taiwan, then Canada, US and UK.

I have no doubt that what we are seeing now is unprecedented since the cold war. By all counts we are headed into another version of cold war with China and companies with strong ties to China like Zoom may be severely impacted. It is a risk I can’t wrap my head around and as such I’ve stayed away.

I thought the company with so much experience and seniority on its board would realize this threat and start quickly mitigating the risk. Clearly fixing the encryption issues will not do it. It didn’t work for Huawei and it won’t work for Zoom. The only solution to eliminate any doubt about security of its network is by moving development out of China. This may not be the easiest task to do but its certainly doable and I would expect that by now the process would have begun. Yet, I don’t see any signs of it. One has to ask why. Governments of countries where vast majority of their paying customer base comes from are raising red flags and all they have done is “fix” their encryption mechanism and route encryption keys for conversations ex China differently? This is exactly what Huawei was arguing when it was trying to sell 5G to the west and largely failed.

From everything I read, the technology they use is developed by 3 companies in China, only two of which are owned by Zoom. Does this mean Zoom cannot move development elsewhere? Does Ruanshi Software own some technology Zoom relies on? What are Ruanshi’s ties to Chinese Communist Party? These question may resurface again.

In my view Zoom needs to come out super clean about this aspect of their business. The longer they wait, the more problematic this may get. The world of Wall Street is filled with stories of horrible failures of companies tied to China and that was before this terrible geopolitical backdrop.

The Citizen lab report is worth reading https://citizenlab.ca/2020/04/move-fast-roll-your-own-crypto…. It raises some serious questions. Citizen lab is well known in the national security circles. One of their main donors is Palantir controlled by Peter Thiel with extensive ties to the national security establishment.

Please take this as my contribution that is intended to help, not to bash or criticize. For all I know this may all be just a bunch of smoke but I do know that this is a risk that is very hard quantify and therefore manage, which is the angle I’m trying to add to this conversation.

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