Zoom (ZM) shares are getting crushed today — down around 17%.
This tanking might even signal the event that as a society, we are done with this public health crisis, at least the shelter-at-home darling tech stocks are and will be down in the dumps for the short-term.
I have to give it to the company that Eric Yuan built.
He simply had better video technology than others at the time and was ready to roll it out when everything closed down — a perfect intersection of opportunity and preparation.
The first-mover advantage meant something, but that didn’t mean it was going to be the x-factor, and this massive sell-off has a little bit of the feeling that Yuan has given that advantage all back in one go.
This first-mover effect gives management time to figure out how to stay ahead of the game whether that means moving in a different direction or doubling down on the thing that got them there in the first place.
Zoom failed.
The tepid forecasts are also bad news for the other tech darlings of 2020 like DocuSign (DOCU), Teladoc (TDOC) and I would even lump Fastly, Inc. (FSLY) in there too.
It’s highly likely that these companies have peaked and will never see a conflation of bullish tailwinds that supercharges their business models ever again like in 2020.
They will just need to ride the solo secular tailwind of the pivot to digital migration which is ok, but not a supercharger.
I mean come on! Zoom is a video conferencing software company and that’s all they had going for them; they are still a video conferencing software company.
There is only so much that can do for them.
They would have had to move mountains to reboot its growth rates.
History will likely agree with me that Zoom was just a one-hit wonder and there’s no second hit coming from any album in the future.
That’s not a bad thing if you own the company, that one great year made the founder Yuan massively rich. Well done to him.
However, buying Zoom at the peak of the pandemonium at $560 will prove to be an expensive mistake.
If it ever does rise above $560 again from the $290 today, it will take 3-5 years and that opportunity cost incurred will be painful when there are so many other alternative tech stocks besides Zoom shares.
Revenue increased by 54% year over year in the quarter and in the previous quarter revenue had grown 191%.
Next quarter, Zoom is guiding to 31% growth.
The company has stuck with what it does best — video conferencing software while many other companies have raced to deploy their own Zoom copies.
The earnings weren’t all that bad with gross margin widened to 74.4% from 72.3% in the previous quarter.
Also in the quarter Zoom announced the availability of Zoom Events, which gives organizations the ability to hold premium online meetings. And Zoom said it invested in event software maker Cvent as Cvent sought to go public through a merger with a special purpose acquisition company.
Zoom now has 2 million seats for the Zoom Phone cloud-based phone service, up from 1.5 million three months earlier.
The company increased its forecast for the year as coronavirus case counts have increased, including from the Covid delta variant, and some companies delayed plans to reopen offices.
“What we’re seeing ... is headwinds in our mass markets, so these are individual consumers and small businesses. And, as you say, they are now moving around the world. People are taking vacations again, they’re going to happy hours in person,” Said Zoom CFO Kelly Steckelberg.
This roughly translates into an admission that Zoom will never do as well as it did during the pandemic.
And if you want to create a tier of “premium” meetings, they are still meetings with a glossier title — it doesn’t move the needle one millimeter.
Acquiring an events software maker is incredibly underwhelming — sounds like a niche company becoming even more niche and what investor wants to hear that?
Why not go for a cocktail party events software platform next?
We are just in the early innings of people taking vacations around the world and that will accelerate as overseas gets its handle over the delta variant which is looking like this winter to next spring.
I am also planning my Vietnam on a motorbike vacation when they finally open back up like many others.
I would also like to point out that tough comparable numbers are an issue faced by almost every tech company, not just Zoom, but tech companies like all the FANGs.
The key here is that FANGs have more than just a shelter-in-place business and have hit the ball out of the park on earnings plus more.
In fact, the re-opening of the US economy has shown that other tech companies can’t compete with the behemoths, they might as well get acquired by them.
Even with a massive first-mover advantage, the speed at which the likes of Microsoft and Apple move to smother anything like a DocuSign is lightning quick.
The fact that the likes of Zoom are one-trick ponies is really the death knell to them and why I advocate selling themselves to a tech company that can do more with them.
The little time they had to move in a different direction was wasted in just buying a few more data centers, a marginal events software company, adding “premium” meetings, and by and large, accepting the status quo which is just not good enough when there are a bunch of 800-pound gorillas in the room.
Ultimately, Zoom forecasting 31% of revenue growth next year is pitiful and a massive let down, it honestly might as well have been -31% growth.
This stock is going to have to solve itself out in the short-term and is it worth getting into Zoom long term when others can figure out video conferencing so easily?
The moat around the castle has been removed and the enemy is at the gate.
Zoom had a chance to run with the momentum but their stagnant ideas are coming back to haunt them where it hurts — the stock price.
I would put this one on the backburner even if there is a good chance for a dead cat bounce or 2 in this stock short-term and that goes for the rest of the shelter-in-place tech stocks.
