Market Comment July 2020 - Who Is Zoomin' Who?
When Aretha Franklin topped the charts in 1985 with her song ‘who's zoomin' who?’ little did she know that one generation later the answer would be quite simple: Just almost everybody is zooming everybody else.
Of the selected few winners from the Corona pandemic from ecommerce, gaming, digitization and streaming, Zoom Video Communications stands out. Zoom is helping to enable life-saving social distancing strategies during the pandemic. The popular video conferencing platform also stands to benefit from the trend toward remote work and online education that is likely to continue long after the crisis ends. Zoom video calls reached 300m participants a day in April. Zoom is growing sales and profits at a rate that few businesses can match. Its first-quarter revenue soared 169% year over year to USD 328 million, while its adjusted net income rose more than six-fold to USD 58 million. Zoom's cash flow was even more impressive; its operating and free cash flow increased more than tenfold to USD 259 million and USD 252 million, respectively. Zoom's strong cash flow generation and fortress-like balance sheet -which contains USD 1.1 billion in cash and investments and no debt - place it in a sound financial position. The fact that it is so profitable so early in its growth cycle is a testament to the strength of its asset-light business model. Better still, Zoom should grow even more profitable as it scales its business across more users and paying customers. The stock delivered nearly300% returns since debuting on the public markets in April 2019. Zoom’s price-earnings ratio of about 1200x is a testimony to the market’s expectations of more torrid growth ahead for the company. A year ago, Zoom’s CEO said that he estimated the company's Total Addressable Market (TAM) at USD 43 billion or more by 2022. For context, Zoom's fiscal 2021 revenue guidance of ca. USD 1.8 billion is about 1/24th - or just over 4% - of the original estimated TAM. Zoom’s market capitalization now exceeds USD 72 billion which is just half of Tesla’s or double that of Daimler. Arguably, comparing an asset-light communications company with a car manufacturer is challenging. Still, it points to game-changing challengers that are flying high, very high and there is no reversion to the mean in sight at least for now. Zoom has joined the illustrious club of companies whose name has become synonymous with the product or service they provide. If you ever googled something or ubered to work, you know exactly what we mean.
And, the Queen of Soul saw it coming: If you like to listen to her song one more time just click the link below. https://www.youtube.com/watch?v=Gi6yGuvKv_E
Switzerland, July 1st, 2020