Zoom to the Moon
After Monday's closing bell, video conferencing provider Zoom Video (ZM) reported earnings for the quarter ending in July. To say Zoom crushed the estimates would be an understatement.
Zoom earned 92 cents per share, more than double the estimate of 45 cents. The company grew revenues at a 355% clip, much higher than the 240% estimate.
Perhaps the biggest knock on Zoom is that the company is pulling sales forward from future quarters. Even if that's true, Zoom doesn't expect much of a drop off; the company raised its guidance from 35 cents to 73 cents per share for the current quarter, and from $1.30 to $2.40 for fiscal year 2021. Long story short, Zoom's prospects look good going forward.
While all of the above figures are very impressive, there's another reason why investors might want to own this stock. Zoom, which has only been publicly traded since April of last year, accounts for 50% of the video conferencing market, according to a recent note from J.P. Morgan analysts. Growth is coming at the expense of rivals like WebEx, a product of Cisco Systems (CSCO).
Another reason to own Zoom is because, like Starbucks (SBUX) and lululemon athletica (LULU), the video conference maven is quickly becoming a household name. It's difficult to quantify what that type of exposure means in terms of dollars and cents, but it makes Zoom the envy of its sector. Zoom is likely to remain in the public's consciousness long after the Covid-19 pandemic ends.
Should Zoom be owned or traded? In the current market environment, I favor the latter. I cut my teeth during the 1999 Nasdaq rally, and Zoom is partying like it's 1999.
The moves in Zoom are reminiscent of those in America Online and Yahoo twenty years ago. There's no point in fighting the tape, as long as you're ready to hit the eject button if things go south.
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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.