8/21/2023 0 Comments Zoom video stockThe company is more than two years into developing products and services that broaden its use beyond web conferencing with Zoom Phone launching in January of 2019, yet the market has priced Zoom for only one path (web conferencing). The market’s biggest misperception about Zoom is that it’s a web conferencing app. I believe the market is making a mistake by dropping Zoom from the top 20 for cloud software valuations. My overarching thesis about cloud software’s resiliency extends to other names, yet this analysis focuses on Zoom Video as it’s one the strongest stocks on the market in terms of its historic top line growth, strong margins, incredible free cash flow and growing profitability. Competitively it can be very harmful to not transition to cloud right now, as I’ve emphasized in my past reports. Traditional IT is expensive and will only hinder a company from taking advantage of AI and 5G. There is only one way forward for SMBs and enterprises - adopting cloud IaaS, platforms, and software. The Q1 reports are necessary to shed light on what companies will be the leaders coming out of the unusual year of 2020. We are not surprised to see lower valuations following the Q4 earnings reports as the market holds its breath to see how cloud will perform following tough comps from Covid. This year is very unique for cloud software because many stocks are guiding for less than 40% revenue growth. My thesis was proven correct by Covid as cloud software performs well in extreme economic climates because it reduces costs when budgets are constrained, and increases productivity, which is important during times of economic expansion. ![]() I explain why Bandwidth remains a solid choice yet we see more upside in Zoom due to the company’s sub-Top 20 valuation.ĭuring the September 2019 selloff in cloud, which saw 40% to 50% drawdowns in many solid cloud names, I made sure to hammer on my thesis that cloud is a secular trend insulated from geopolitical risks and economic drawdowns. Please also note, per the analysis below, the I/O Fund has closed its position in Bandwidth and allocated more to Zoom. In the analysis, I also elucidate my thoughts on “exceptional product-market fit” and Zoom’s product strength pre-covid, during covid, and what the company will do to double its TAM in the coming year. The market is overlooking Zoom’s long history of category-leading growth, which is discussed in detail below. However, there has been only one tech company on the public markets that has illustrated the financial strength that Zoom Video has in both its top line and bottom line.Ĭritics will say Zoom required Covid to generate these numbers, yet one look at the S-1 filing immediately disproves this theory. There have been hundreds of unicorns since the term was coined by Ailene Lee of Cowboy Ventures. The term unicorn was first used to describe a startup with a valuation of a billion dollars or more. Zoom has illustrated rare financial strength from its IPO through today due to exceptional product-market fit. Last year, I called Z oom Video a “pegasus” because the company stood out from the dime-a-dozen unicorns that have come out of Silicon Valley. ![]() Photo by insta_photos/iStock via Getty Images
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