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Zoom Stock Is Still Worth Holding After Becoming a Household Name

Zoom Video has become a verb, which is a powerful advantage in any technology niche

When your name becomes a verb, you have an immense asset. Once users said they would “google” something, dozens of companies in web search fell to the artists now known as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Today, millions of people say they’re going to “zoom,” and we all know what it means. They’re going to join a videoconference run by Zoom Video Communications (NASDAQ:ZM). That’s good news for Zoom stock in the long run.

Zoom Stock Is Still Worth Holding After Becoming a Household Name
Source: Michael Vi / Shutterstock.com

Internet videoconferencing has been around for a long time. Cisco Systems (NASDAQ:CSCO) was building high-end “telepresence” rooms for it in the 2000s.

But Zoom, founded in 2011 by Eric Yuan, a former Cisco employee, stole a march on the market by making conferencing free and easy. Even before the coronavirus hit, it was the market leader over dozens of competitors, including Google.

The question now is whether it can stay ahead.

Zoom to the Moon

Zoom was due to open for trade June 1 at over $183 per share. That’s about a $51 billion market cap, 2,000 times earnings, about 82 times last year’s revenue of $622 million.

From the standpoint of investing fundamentals, Zoom is ridiculous. But every time traders look down and sell, new buyers jump in. The stock has more than doubled in value since the pandemic lockdown started in March. Those who got in Zoom stock early, either for $36 per share at the May 2019 IPO or later that day near its $66 per share close, are asking if it’s time to take profits.

The answer depends on how badly you need cash. If you like the action and watch your stocks carefully, you can speculate that Zoom’s stock will go higher. If you’re an aging baby boomer like me, your finger is on the sell button. Remember, you don’t have a profit until you sell, and the cash is in your hand.

Zoom is due to report earnings June 2, after trading ends. Analysts expect 9 cents per share of earnings, and hope for 10 cents, on revenue of $203 million. That would be a 66% annual growth rate, and double last year’s earnings.

What Zoom Is Doing

One of the short-term falls in Zoom stock was caused by security concerns. Zoom-bombing entered the dictionary as some people entered meetings to harass participants.

Zoom has responded with a required upgrade to its software. But the company is also seizing the opportunity its problem created. It plans to add additional security features for paying customers.

Zoom is also hoping to turn its Application Program Interfaces (APIs) into a platform and, then, an industry. It held a contest for start-ups that was won by an Indianapolis company, Docket. It is now seeking $2 million to add agendas, note-taking tools, archives and task steps to Zoom meetings.

Zoom is not first to market here but, unlike Facebook (NASDAQ:FB), its adversaries are scaled. Microsoft (NASDAQ:MSFT), Facebook and Google all have competing services. Microsoft has added Zoom-like features to Microsoft Office 365 with Microsoft Teams. Google now offers meetings within Google Mail, and calls its offering Google Meet. Facebook has expanded its video chat services and even Verizon Communications (NYSE:VZ) has gotten into the race by buying Blue Jeans Software.

The Bottom Line on Zoom Stock

Zoom’s stock is too expensive, and it has too much competition, for me to buy it here.

If I owned some, however, I wouldn’t sell out completely. I would take some profits and let the rest ride.

That’s because, while Zoom’s price is ridiculous, history is on its side. Once a company’s name becomes a verb, it has a huge advantage, even against scaled competition. Google proved this. Facebook proved this. Even Microsoft proved this against International Business Machines (NYSE:IBM).

There’s no reason not to think Zoom has a chance to prove it as well.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhornAs of this writing, he owned shares in MSFT, FB and IBM.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/zoom-stock-is-still-worth-holding-after-becoming-a-household-name/.

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