After weeks of uncertainty surrounding the novel coronavirus, President Donald Trump recently gave the nation the news it was waiting for. Referencing the latest data, Trump announced that we had passed the peak of the pandemic. Further, he announced that some states could reopen sooner than the May 1 target his administration hoped for. However, what’s good for the country isn’t so good for Zoom Video Communications (NASDAQ:ZM). You can make the argument that Zoom stock thrived during the pandemic.
Of course, I’m not suggesting that management was actively rooting for Covid-19. But from a cynical perspective, you can’t help but look at the charts for Zoom stock. Following its debut in April of last year, ZM closed at $62. On the final day of 2019, shares closed at $68.04, a whopping gain of 9.74%.
That’s not to say that Zoom didn’t impress, because it clearly did. Many people signed on for its intuitive platform and group teleconferencing capacity. However, with a price-to-earnings ratio in the stratosphere, Wall Street failed to see Zoom stock as a viable story. Therefore, despite its surges of occasional robust momentum, shares ultimately went sideways.
However, that changed with the coronavirus. In Italy, which quickly turned into the global epicenter for Covid-19, Zoom witnessed an exponential surge in demand. Later, the U.S. would follow suit, first with businesses ordering their employees to work from home and then individual states issuing shelter-in-place mandates.
Still, we are social beings – and that’s a scientific fact. Zoom played a vital role in staying connected, boosting our collective mental health. But should states open soon, the incentive for ZM could eventually fade away.
The Time-Staggered Thesis for Zoom Stock
Another factor that’s surely playing into ZM stakeholders is the state of the economy. Last week, more than 5.2 million Americans filed for unemployment benefits, according to the Washington Post. Over the last four weeks, more than 22 million Americans submitted jobless claims. We have not seen this kind of deterioration since the Great Depression.
Eventually, the pain could hit Zoom and other teleconferencing platforms. With companies laying off workers, the professional need for ZM diminishes, which then makes Zoom stock a losing proposition. After all, it’s hard to make money off someone who doesn’t have any.
Nevertheless, Zoom stock may be insulated from the economic damage, at least for the time being. That’s because the most vulnerable segments of the economy are absorbing the brunt of the damage. Theoretically, this may mean that ZM is last in line for a firing squad that might run out of ammo.
Obviously, the broader retail industry suffered hideous devastation from Covid-19, particularly clothing and accessories. This segment fell over 50% between February to March. Further, the restaurant and bar industry, along with furniture and home furnishing sales cratered.
However, these segments are not known for their high-paying jobs. Based on the latest employment report from the Bureau of Labor Statistics, most of the job losses occurred in these vulnerable retail segments. Therefore, it appears that the cubicle warriors of America are relatively safe.
Granted, no one is truly safe from this disaster. But many of the companies that hire our keyboard commandos may be eligible for government bailouts or protections. In my opinion, they’ll last longer than, say, an independent auto repair shop. Therefore, Zoom should stay relevant so long as we have a country.
ZM Is Part of Our Lexicon
One of the long-shot arguments I made about personal protective equipment specialist Alpha Pro Tech (NYSEAMERICAN:APT) is America’s behavioral shift. During the Great Depression, the collective pain was so deep that survivors forever remembered that time. Therefore, it wasn’t unusual to find someone from that generation becoming a hoarder.
Similarly, I don’t see the current generation forgetting the coronavirus pandemic’s lessons so easily. This time, I believe Americans will no longer consider PPEs like facemasks as mundane objects but rather valuable commodities. Further, the concept of social distancing means that Zoom has integrated itself into our consciousness.
Let’s face it – we’ve set a precedent. The next time something like Covid-19 or H1N1 sprouts up, we may shut down our economy again. In that situation, we’ll revert to what’s now normal for us, Zooming. Thus, Zoom stock may be relevant for years to come.
But if you’re going to buy shares, I’d recommend waiting for a discount. With so many question marks clouding the economy, this will almost surely be a turbulent ride.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.