Zoom, Shopify, Other Rich-Value Tech Stocks Continue Run

Netflix's earnings report didn't curb investor enthusiasm for high-growth companies seen as winners in the current environment.
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Investor enthusiasm for richly-valued tech companies that they see as winners in the current environment isn’t letting up - at least for the moment.

On a day that the Nasdaq is up about 2.1% and the S&P 500 just 0.69%, a host of Internet and cloud software companies are registering much larger gains, with quite a few up over 4%.

At this writing, Zoom  (ZM) - Get Report is up 8.4%, Peloton Interactive  (PTON) - Get Report is up 9.7% and content delivery network owner Fastly  (FSLY) - Get Report is up 8.5%.

Cloud communications API provider Twilio  (TWLO) - Get Report is up 10%, cloud unified communications software/service provider RingCentral  (RNG) - Get Report is up 5.3% and cloud software development and collaboration tool provider Atlassian  (TEAM) - Get Report is up 9.5%.

A host of e-commerce plays are also up strongly: Amazon.com  (AMZN) - Get Report is up 7%, Shopify  (SHOP) - Get Report is up 8.1%, Chewy  (CHWY) - Get Report is up 5.3%, MercadoLibre  (MELI) - Get Report is up 5.9% and Wayfair  (W) - Get Report is up 5.4%. 

Security tech names such as Zscaler  (ZS) - Get Report (up 5.9%), CyberArk  (CYBR) - Get Report (up 6.7%) and CrowdStrike  (CRWD) - Get Report (up 5.2%) are also doing well.

Several of the aforementioned companies have now more than doubled on the year. The list includes Zoom (up 295%), Fastly (up 324%), Twilio (up 166%), Wayfair (up 150%) and Peloton (up 126%).

Monday’s gains come just three days after Netflix  (NFLX) - Get Report - the entertainment-streaming service that saw its subscriber growth accelerate sharply in March and April thanks to covid-19 lockdowns - fell 6.5% due to the softer-than-expected third-quarter paid subscriber guidance shared in its second-quarter report. 

Netflix, which says its recent subscriber jump served to pull forward signups that would have taken place later, is up 1.3% in Monday trading.

Likely contributing to the continued strength in tech companies seen as benefiting from the current environment: the recent spike in covid-19 cases in many southern and western states. This has led reopenings to be paused or reversed in many parts of the U.S., reinforcing investor perceptions of such companies as safe havens.

But in a year when retail trading activity has grown substantially, it’s also hard not to lose sight of how popular many high-growth internet and cloud software names remain with retail investors. 

Data from Robintrack, a website that monitors trading activity among Robinhood brokerage accounts, indicates that the numbers of Robinhood accounts holding Peloton and Zoom shares (just to give two examples) have respectively grown 287% and 374% since the start of the year.

Whether retail or institutional, those investors recently jumping into companies seen as benefiting from lockdowns and/or greater remote work activity have often been willing to pay very rich valuations. This is true even if one ignores the fact that many of these companies are generating few or no profits for now, as they invest heavily for growth, and are valued based simply on forward sales multiples.

With the qualifier that the company significantly hiked its full-year guidance in June and might do so again, Zoom now carries an enterprise value (EV - market cap minus net cash) equal to 41 times its consensus sales estimate for fiscal 2021 ending in January 2021.

Shopify has an EV equal to 52 times its 2020 sales consensus, and Fastly has an EV equal to 30 times its 2020 sales consensus.