Their stock price is has jumped from 68 in January to 238 in June.
In my opinion, it's one of the biggest valuation bubbles I've seen. I want to hear from people who disagree with me.
I would actually say they are probably undervalued if you are looking at Zoom's long term prospects. Video Conferencing is here to stay as primary means of work communication, and as with any communication businesses like messaging and now VC market will consolidate towards few players - network effect and ease of use, and the friction in downloading and installing more apps all play a factor.
Zoom have not gained the paying customer traction they should be having in the Fortune 2000 kind of companies. Sales cycles in these companies are no so short to reflect within a quarter, and many of them have to readjust from existing
Market expects their sales to multiply few times in next few quarters, so do I and perhaps also you, the difference is how we each price growth and risk. I think the risk is low, and growth easily can be more than market anticipates as of today.
If you have more people on Zoom you just have... more people. Conferencing and video software don't really have a lot of moat. Skype, Teamspeak, Mumble, Google Hangouts, Discord etc.. there's always been plenty of competition and churn.
for example if half my customers already use zoom , I would seriously consider it even if it was costlier
At first read, they're pouring every dollar of profit into their sales/marketing organization so they can continue to grow at over 100% YoY. As a first order SWAG, the market is pricing in something like 5x growth over the next 5 years while ratcheting down SG&A as a percent of total cost. If Zoom executes successfully, they maybe ends up with a PE closer to 15.
Or maybe every enterprise realizes Teams is bundled with O365 which they're already paying for and stops licensing Zoom as individuals return to the office. The implied volatility for at the money calls on Zoom expiring Jan 2022 is over 60% while the broader S&P 500 is around 20% for options with similar expiration. Seems like the risk is priced in.
In other words, so what if the PE ratio is 1000 or 10 or 5? You as an investor aren’t going to get a piece of their earnings in any case. You only get paid when you sell your shares to someone else.
Yes I just described the Greater Fool Theory...
As for the valuation, yeah, that is wild. It very well could be divorced from reality.
I guess it is plausible that with excellent execution they could somehow build a moat around their business and get to some type of monopoly status for video conferencing.
They do seem overvalued in that their current price indicates that they are on their way, there is little risk to that happening. But there seems to be huge risk, there are lots of competitors and I can't see how they differentiate enough to escape the competition.
I don’t see any reason why motivated players like Microsoft and Google cannot catch-up with better offerings integrated with their Office/Apps suite.
They were in the right place at the right time. But the landscape is changing quickly, with WebRTC finally solid and more or less ubiquitous. Security and privacy are also top of mind for many, and Zoom has quite some baggage there.
Sigh.
Right now, I think buying Zoom is, even with the outrageously high P/E ratio, might still be worth considering. I would look at growth and profitability over P/E. Zoom's breaking into Fortune 100-200 companies with strong momentum, and there's really no structural issues it needs to deal with. The current stock price makes sense if you take into account future growth; worst case scenario, it corrects and it'll make it up after a few more strong quarters.
My suspsion is that they will get better at monoterizing their platform. The fact is that it's a popular player in an increasingly important industry. I would not count them out.
However, most startups have a PE of hundreds. 1300 is a bit overpriced, I agree, and I don't see them opening up any new business models even with total monopoly.
It's clearly overvalued, but when will it start to fall?
Not sure I'd do it again though. Depends on the timeframe.