Why We're Starting To Pour Money Into This StockNov 26, 2021
Let's get straight into it with three crazy things to start your day:
- Zoom's (ZM) stock is down over 63% since its high's earlier this year.
- We've been short this stock the entire year and now we're reversing our position as of November 24th (see tweet below for evidence)!
- With news of the new strain coming out of Africa, countries are going back into lockdown causing Zoom's stock to go up over 10% today.
While the news of the variant is awful and we are praying for the world, as investors, we need to try and put some of our emotions to the side as we see certain events play out. And while we entered a position into Zoom earlier this week, the news today is exacerbating the urgency of acting now.
1) Let us tell you why for the first time this year, we're finally long Zoom $ZM— Moby (@MobyInvest) November 24, 2021
- Zoom has finally fallen into a fair valuation
After starting the the pandemic trading at insane multiples, the stock has finally fallen back to the point where growth is now underpriced
Additionally, with the price of the stock finally starting to become normal among a handful of other factors, this is the first time this year this company is finally becoming investable. Let's get into the details why:
Zoom Investment Overview:
As we mentioned above Zoom became a new position for us as of November 24th, 2021. While news of the new variant could act as the catalyst needed to reverse the trend of this stock, there are also several core reasons why we now like the company. Let's get into it 👇
- Valuation: For the longest time, Zoom's valuation was out of control. But now with the stock down so much, the price of the company is finally starting to make sense. Looking at their projections, we see that their current price tag falls in line with their peers, making the price of the stock finally justified. While there definitely could be continued selling off of the stock, at this price, any lower prices would lead to them being undervalued. Therefore we're fine getting in on the stock now even though it may continue sliding a bit. Once it reverses, we'll still be able to capture most of the projected upside.
- Revenue Growth: Zoom's enterprise customer growth (customers paying them over $100k a year) grew 94% from last year. Focusing on the enterprise section of the market (aka customers that pay you the most) is a focus for many software companies for obvious reasons. With more enterprise customers, comes the ability to scale revenues fast vs. working with retail customers who only pay low base pricing. And when we see close to 100% growth, that signals that large companies still place immense value on Zoom's capabilities therefore leading us to believe their product is still far superior to their competition. Additionally, as a US based company, Zoom was able to grow international revenues well ahead of their growth last quarter. Zoom's international revenues grew by 46%, well ahead of their US based growth - where most of the revenues comes from. This is important because continued growth for Zoom will be incumbent on their ability to expand internationally. Long story short, Zoom being able to continue to grow revenue's so substantially is very appealing given the massive growth they had last year.
- Ability to launch new products: Many of you have asked us why a video chat company deserves to be valued so highly and the reason is due to them not actually being a video chat only company. Zoom is quickly trying to transition its image from a video based company to a communications company. Under this broader title, Zoom is going after several new products, one of which includes Zoom Phone. This business line's revenue grew over 100% year over year and now has over 30 customers with over 10,000 paid seats. While this is a relatively small business line compared to their core business, this growth shows promise in Zoom being able to diversify their revenue streams and product offering! Over time, if they can keep it up, investors will start to reward them for being able to grow this business unit.
Without trying to bore you of the details above, the summary here is that Zoom is still growing quite significantly, has a massive opportunity still ahead of them and are finally "cheap" enough were buying their stock finally makes sense.
With many hyper growth stocks falling out of fashion over the last year, Zoom fairly followed trend.
But with an over 60% decline from its high's earlier this year, Zoom has the ability to trend upwards over the next year or two.
While this pick does come with a fair amount of risk, the upside here is clear and we're comfortable taking it!
Price Target: $360
% Upside to Price Target: 64%
Current Price: $220
Target Date: Q3 2022
Risk/Reward: Medium-High/ High
Dividend Yield: 0%