Millions of People Will Soon Be Blindsided. Will You Be One of Them?

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Wait on Investor Rotation for Zoom Video

Advisors like to tell clients to rotate investments. Get into the new, get out of the old. Seek value and income, not just capital gains. Diversify. Stock buyers also rotate. First come the speculators, then the momentum traders. When the momentum is gone you see the growth investors. If the company is good enough for long enough, value investors come in. Zoom Video (NASDAQ:ZM) and shares of ZM stock  illustrate the pattern.

Zoom (ZM) logo on a building
Source: Michael Vi /

The speculators have gotten out, and now too the momentum traders. Analysts want to see what investors will pay for Zoom’s growth. They want to see how much there is. Value is a long way off.

After a spectacular run-up that brought shares to $568 last month, shares opened Nov. 18 at about $400.

Time to find out what Zoom is worth.

Calculating Value

Zoom last reported results at the end of August. Revenue was $663 million, with non-GAAP net income of $275 million, 92 cents per share. The company next reports Nov. 30. Analysts expect 75 cents of net income on revenue of $695 million. They’re hoping for 99 cents.

To speculators, this means growth is slowing, time to get out. Zoom has been the unquestioned star of the novel coronavirus pandemic. In less than one year after its public offering, it’s become a verb. People zoom like their parents googled, and their grandparents xeroxed.

That’s an immense advantage. It means that over the next year Zoom may have revenue of $3 billion, and a profit of up to $4/share. That’s growth worth paying for. But the market cap is now $114 billion. Investors are paying nearly 40 times next year’s revenue, and 100 times next year’s earnings.

The Czars are Coming

Then there’s the fact that Zoom didn’t invent anything but its business model.

Cisco Systems (NASDAQ:CSCO) was offering teleconferencing, from special rooms, in 2006. The company bought a scaled-down version called WebEx in 2007 and is now promoting it heavily. If you watch CNN, their regular interviewees are all on WebEx. (Zoom founder Eric Yuan left WebEx to start Zoom.)

Then there are the cloud czars.

Alphabet (NASDAQ:GOOGL), the House of Google, is pushing its Google Meet system hard. When I tried to start a Zoom last week with a great ADHD camp and school I support, Google tried to switch the call to Google Meet. Then there’s Microsoft (NASDAQ:MSFT) Teams, and Apple (NASDAQ:AAPL) FaceTime. If you’re in those ecosystems, they want to drag you in.

What makes Zoom special is that it’s free, ad-supported, and made to be easy. Yuan put only the easy stuff about videoconferencing into Zoom and eliminated the pain points. It’s an app available on every device, there’s no lock-in. That’s the secret sauce.

Trouble is it’s no longer secret.

The Bottom Line for ZM Stock

Zoom is working hard to firm up its consumer niche. It’s offering unlimited video calling for Thanksgiving. End to end encryption is standard. The company is trying to end “zoombombing.”  It’s meeting HIPAA standards to increase its niche in telemedicine.

The czars must tread softly on Zoom because the anti-trust police have their eyes on them. But Zoom is not the second coming. It has had a spectacular run, and now faces competition.

The pandemic will also end.

If you have made money on Zoom, take it. No company is worth 40 times its revenue. But keep your eye on it. In six months, or a year, the valuation may become reasonable, either as a continuing concern or a buy-out candidate. There’s more money to be made here. Just not right now.

At the time of publication, Dana Blankenhorn had long positions in AAPL and MSFT.

Dana Blankenhorn has been a financial and technology 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. Write him at or follow him on Twitter at @danablankenhorn.

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