Zoom Zoom Zoom - Think we peaked?

Investment Analysis Clubs Saul’s Investing Discussions
1

Except on the Political Asylum board full of zealot idiots and demagogues, I don’t believe I have ever seen such a dominant string of posts on one topic. It continues today Zoom Zoom Zoom.

The stock is trading for more than 50x revenue. No, that is not sustainable. The stock boomed as a rare safe and successful place to go with this historic pandemic.

On this board, despite Saul making at least one attempt to limit the Zoom conversation, it still goes on and on and on.

Now Zoom has its numbers of downloads and users boom boom boom! But wait, most of the users will never be paying users. Use will indeed go up plentifully, but not near the numbers being flaunted here. Zoom knows it, we know it.

Then comes out the Zoom security story. Zoom will fix it, and have their Tylenol moment.

But really, is there any other momentum that could happen to propel Zoom to 70x revenues, 100x revenues? Hey, maybe the upcoming earnings will show revenue growth did climb 150%, a huge acceleration.

But lets be real here. Juniper Networks was once valued at $50 billion + on the internet build out. Qualcomm was valued at what I remember being (I can stand correcting here as those were heady days) of over $300 billion, with an analyst coming out and saying it was worth a trillion!

Of course, back then, who would have ever expected we’d see a company worth a trillion dollars.

But if all the good news is now baked into Zoom (well, we can see what earnings brings) what is to move it further?

From my perspective, for which I called Zoom a great buy at $15 billion (despite still having that huge multiple), to cheap is cheap, etc., there comes a point on the extremes when too much is too much.

I am basing this not just on the valuation issue, but on the pure mania I am seeing here. We might as well start calling this the Zoom gossip pages.

So just bringing into question, what else is there that will push the momentum for Zoom higher, thus consistent with wanting to buy into winners. Hold? I can see that, or not, Buy a new…I think that is becoming more of a question.

I put this out for conversation as what I am seeing discussed here is close to unprecedented for one name.

Tinker

41 Likes
2

Tinker,

I do not think Zoom has peaked in the medium to long-term. Social distancing will be required for a long time. This will be a constant driver of Zoom sales.

Bnh

3

Zoom’s high valuation is not new news. Zoom’s slide since last week is mainly due to 2 reasons imo:

  1. Of course the security issue. While most of the security issues have/will be addressed in short order, a true E2E encryption where zm will not hold any keys may not be a quick fix. I am not an IT expert so take my opinion for fwiw. More news of customer fleeing will act as headwinds.
  2. The perception in the last few days that things may not turn out so bad with covid-19 and maybe we won’t have a prolonged social distancing WFH situation. While that is a good thing for most of our other stocks it is not so great for the covid-19 stocks like teladoc, work all of which fell today.
1 Like
4

Texmex, that was a pretty good summary, and is my understanding on the encryption issue as well. This will be the hardest to fix/implement.

As far as valuation goes, until now, Zoom was flawless. The only thing that was wrong with it was it’s high price. Even Coronavirus was a boon to it. Now, not only does Coronavirus appear to be peaking, but Zoom has security issues. Zoom is now a flawed stock that is still priced very high.

We have gone from anecdotes of “my company now uses Zoom” to “my company banned Zoom.” This is not something you want to see in a company at 55x sales that until Coronavirus came along, was slowing growth.

3 Likes
5

I put this out for conversation as what I am seeing discussed here is close to unprecedented for one name.

My two cents would be that growing a user base 20x from the previous quarter is unprecedented. I understand that isn’t growing revenue at 20x, but I don’t mind getting a little skin in the game and seeing what happens. I have a 3% position under the adage, “If a stock soars, all you need is a little. If a stock tanks, a little is all you want.”

Brandon

7 Likes
6

12x,

I am guessing the posts we are seeing about Zoom being banned are from companies that are not enterprise customers of Zoom’s product. They seem to be just saying use of Zoom is banned on their network. The thing to watch is what the paying enterprise customers are doing.

I work at a large semiconductor ($50bil+) firm where security is taken very seriously due to issues with China about IP theft. We recently switched company wide to Zoom and I am guessing are paying Zoom a good amount of $$. We are still holding Zoom meetings daily and it is even being pushed in most groups as there is an option to still use Skype/Teams. The security issue, a real problem, is being overblown.

Bnh

20 Likes
7

Zoom is at the heart of many corporate or educational institution’s remote work strategy. Remote work is not something that will happen for weeks, then we’ll move on. The recent happy talk of getting life back to normal is, sadly in my opinion, delusional.

No, we won’t always have to live in fear of this virus. But we will see significant restrictions for the next year or so, perhaps longer. Not as draconian as now for most places, but still limiting, especially around travel. My guess is the following:

Phase 1: Severe restrictions. Here we are. Probably 2-3 months in total.

Phase 2: Limited mobility, with the threat of sever restrictions being reintroduced. Probably 18 months or longer. Until we have a “cure” that is widely available.

Phase 3: Covid-19 is a seasonal problem only, and manageable, similar to the flu. Probably forever.

So assuming the above is true or close to the truth, my assumptions are the following:

1 - The schedule above will not be implemented uniformly on a global scale. There will be rolling quarantines. Serious in some areas, lighter in others. So for international travel requirements, things will be very difficult to navigate. Crazy conditions to travel, depending on your passport, where you are traveling, country of residence, health status (certified Covid-19 free?), perhaps age, etc. It’s going to be so complex that I think international business travel will be significantly down for years to come. Schools will also need to have, at the very least, contingency plans for remote teaching.

2 - Because of the unpredictability of this virus, areas that are deemed safe can be reclassified as dangerous overnight. Again, try to manage that with corporate travel, it’s going to be terribly difficult. That big conference in Vegas or Paris that requires months of prep, flights, accommodations, etc. for thousands of people, all traveling from different parts of the world? Good luck with that! Especially if the virus reemerges in France a few weeks before the start. Who is going to risk that? Will governments even allow large gatherings of this type for some time?

3 - Even before this virus, it was crazy to have so many workers physically sit beside each other every day. Why? Sure, face to face meetings are very important, but this can be managed as part of an overall remote work strategy. I think many companies will finally accept that worker productivity is not dependent on having 100% of your workers sitting in the office. So even after all of this is behind us, I’m expecting a not insignificant percentage of people to continue to work from home.

I know the call center market for remote agents is booming now. Why put 500 people in one huge room when you can have them work from home, at lower cost to you? Yes, this brings up other challenges, but it’s all manageable, cheaper, and more provides much more flexibility. Once those agents go remote, they are not coming back.

And let’s face it, companies will need to radically reduce costs in the coming months and perhaps years, as this global recession/depression is going to be massive and, in my opinion, long lasting. Corporate travel budgets will be directly impacted. Many more Zoom meetings.

26 Likes
8

Growth…you say you don’t see…how far can you really see? and how far are you looking?
e.g. SHOP overvalued? maybe. That was dropped 2 years ago. What did SHOP do? Shopify as a business continued to thrive and its stock continued to rise.

and arguably the big growth stage will pass for sure but hopefully it will be when Zoom has become a much larger business and finding new paths for growth and profits. That nobody can really see.

ZM- overvalued? sure. Is that such a bad thing to have everyone say it is?

tj

9

We went from free to paying customers of zoom today.

We have a family sedar scheduled for tonight, and the 40 min limit would not be long enough.

For $15/mo we will keep paying it as long as the lock down in Pennsylvania continues.

I think Easter might convert a couple more accounts from free to paying.

3 Likes