The video conferencing company Zoom that provides conferencing solutions for businesses, education and personal use has seen its share price rocket from $68 in January 2020 to a whopping $423 in September 2020.
Zoom has become a common phrase of the coronavirus period as people seek to connect with each other socially, for business and for learning. However, the company may be riding a tech boom that is about to dive as arguably overpriced tech stocks correct from their high valuations. Zoom has been fuelled by its usefulness in this environment, similar to other stocks like docusign and salesforce. These stocks appear to be in favour at the moment as user growth drives their share price.
The wider question that needs to be answered is potentially whether this corona virus induced environment will lead to permanent change within zoom’s target markets. Employees and businesses have changed their current ways of working and it appears that in the future working from home might become the norm. Employees get more freedom to arrange their working day according to their lives, avoid punishing commutes and employers can scale back their costs by downsizing their offices and sourcing their staff globally. On the flip side, is this just a temporary coping mechanism and will staff and employees crave the human face to face interaction? Will teams within organizations fall apart eventually without it? It’s an interesting time we are living in and probably one that no one can answer with exact certainty.
Zoom is certainly capitalizing on the current trend as demonstrated by its revenue that quadrupled from last year, growing a massive 355% on an annualized basis. One threat to its share price includes technical failure of its technology and inability to scale reliably. It may be ok for a social call but if employees can’t connect for a day due to technical issues, this will surely kill its user base and reputation. The other big threat is over valuation and a vaccine that will pave the way for a return to the original working way of life. It’s always a hard decision as an investor to decide whether to take some stellar profits from the start of the year or hope that growth will continue for a while to power this stock higher.