Zoom is Now Worth More Than Exxon, I Have Ten Questions

Mish

Exxon posted its third quarterly loss. The market says Zoom is worth more.

Nightmare Scenario

Exxon warns it may write down natural-gas assets worth billions as the pandemic continued to weigh on fossil fuel companies.

The Wall Street Journal reports Exxon Posts Third Consecutive Quarterly Loss for First Time

Exxon Mobil Corp. XOM posted its third consecutive quarterly loss for the first time on record Friday and disclosed that it may write down the value of natural-gas assets worth as much as $30 billion, as the coronavirus pandemic continues to pressure the world’s biggest oil companies.

The Texas oil giant reported a loss of $680 million in the third quarter compared with a profit of $3.17 billion during the same period last year. 

Exxon Chief Executive Darren Woods invested heavily before the pandemic to grow Exxon’s oil and gas production by 2025. That decision has backfired as commodity prices plunged this year, forcing the company to make substantial cuts and painful choices about where to invest.

On Thursday, Exxon said it could cut as much as 15% of its global workforce, or about 14,000 jobs, as the struggling oil company tries to cut costs and survive the Covid-19 downturn. In all, big oil producers and services firms are collectively shedding more than 50,000 jobs.

Exxon Mobil Weekly Chart

Exxon Mobil Weekly Chart

Exxon Mobil Monthly Chart

Exxon Mobil Monthly Chart

Let This Sink In

Exxon Mobil Market Summary

Exxon Mobil Market Summary

Zoom Overtakes Exxon Mobil

Business Insider reports Zoom overtakes Exxon Mobil in market value amid COVID-19 pandemic

In Thursday trades, Zoom Video is now worth $140 billion, surpassing Exxon Mobil's market capitalization of $137 billion, according to data from YCharts.com.

The change in fortunes for Zoom and Exxon highlights how swiftly the COVID-19 pandemic has impacted the US economy, and life in general.

As rolling economic shutdowns swept across the US in late March due to the spread of COVID-19, schools and businesses relied heavily on the video chat software platform from Zoom to conduct daily life in a semi-normal state.

This led to a surge in business for Zoom, and helped power its stock higher by as much as 658% year-to-date. Within the first three weeks of US shutdowns, Zoom added 100 million new customers, representing a quick double. 

Exxon Warns of $30 Billion Shale Writedown 

Bloomberg reports Exxon Warns of $30 Billion Shale Writedown Decade After XTO

Exxon Mobil Corp. warned it may take up to $30 billion in writedowns on natural gas fields acquired more than a decade ago, and reported a third straight quarterly loss.

Exxon is confronting one of its biggest crises since Saudi Arabia began nationalizing its oilfields in the 1970s. If the company takes the full $30 billion impairment, it will be the industry’s worst in more than a decade, according to Bloomberg data. 

The company lost $680 million, or 15 cents a share, during the third quarter, compared with the 25-cent per-share loss forecast in a Bloomberg survey of analysts. The shares fell 1.6% to $32.45 at 12:09 p.m. in New York and are down more than 50% for the year. 

That was in stark contrast to Chevron Corp., which disclosed a surprise profit as the company’s oil-production and refining divisions outperformed analysts’ expectations. Chevron’s shares rose 1.1%. European supermajors Total SE, Royal Dutch Shell Plc and BP Plc also turned in better-than-expected third-quarter performances.

Exxon stock has underperformed Chevron but outpaced Shell and BP. The drop has sent Exxon’s dividend yield soaring to more than 10%, a level that indicates investors expect the payout to be cut.

Ten Questions

  1. Exxon Mobil yields a nice 10.67% dividend. That's nice, but will the dividend last? The company affirmed the dividend, but that does not make it especially so.
  2. Will fossil fuel companies survive, for how long, and in what form?
  3. Biden wants to "phase out" fossil fuels. Will he? Can he? Will the next Senate be willing to go along? Will AOC and the Greens demand even more?
  4. Will biden work out a deal with Iran, flooding the market with more oil?
  5. What about work-at-home?
  6. When is there a big push for electric cars?
  7. When will plane travel rebound? 
  8. If energy is undervalued, how long will it be before the market agrees? 
  9. How many more writedowns are coming?
  10. Chartwise, a nice double bottom may be in play. Are you nimble enough to play? Will there be a whipsaw?

I do not know the answers to those questions and no one else has full answers either. 

But those are the kinds of questions value investors need to answer. 

The answers to questions 5, 6, and 8 may seem obvious but are they priced in? That answer may depend on the answer to questions 3, 4, and 9.  

Momo players hoping for a double-bottom may have an easier go of the decision.

Mish

Comments (51)
No. 1-20
PecuniaNonOlet
PecuniaNonOlet

There is an expression, “if we can put man on the moon then why cant we.....” replace oil and gas with new energy.
On the surface, it looks absurd zoom is worth more than exxon but then when you think about it, all business comes down to the number of people using your product. It is fitting that professionals working from home are highly dependent on zoom and similar product to get business done, not so much exxon since very few are driving or flying. Will it stay this way? The longer covid accustoms us to stay at home, the harder it will be to go back.

I do expect big oil to start merging and buying each other out next year or two.

I will now sit back and wait for boomers to chime in and say, “we will never get rid of oil and gas...blah..blah..blah.”

Six000mileyear
Six000mileyear

XOM was in a downtrend 5.5 years before COVID struck. Oil peaked 11-12 years before COVID struck. A MUCH larger trend is in play. Market forces will curb fossil fuels use, so 1.) greens don't need to pass laws to reduce consumption and 2.) fully electric vehicles will become cost prohibitive.

Mish
Mish

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Sechel
Sechel

Biden has been clear. He's not phasing our fossil fuel but ending subsidies. That said the economics of coal stink. It's going away. Even the geologists working in natural gas say we need methane recapture and must stop flaring. We will be using natural gas and oil for decades. It's not about phasing it out but changing the mix to renewables

Captain Ahab
Captain Ahab

I suspect fixed and variable costs, and breakeven points, along with accounting reporting has a lot to do with Exxon's results.

That said, alternative energy has its own economics.

Eddie_T
Eddie_T

I have never understood oil prices or oil stocks......they both often move in ways that make little sense to me. But......

Worldwide demand for oil is in decline....but oil still makes the world go around....and it will for a long time.

Ammonium nitrate fertilizer comes from petroleum. Without that we can't begin to feed the nearly 8 billion people on the planet.

All plastics comes from oil.

Hydrogen economy? The cheapest way to make hydrogen is from natural gas..

Solar power is low EROEI compared to wind....and is losing some of its luster. Wind power is the biggest alternative power source that threatens oil right now..

Nuclear power is very likely to see a resurgence. There is a huge amount of money and R&D going into nukes. Nukes can be made safer and better than the legacy plants

Exxon is no doubt investing in alternative energy. I have no idea what that amounts to....but I'd guess its in the plan.

Oil producers need a certain oil price to stay solvent, because the cost of extracting oil keeps rising, generally speaking, as the best fields go into decline. Only Iran and Iraq have really big untapped reserves of conventional oil.

The shale oil boom has caused a glut....and price is often bordering on making extraction unprofitable.

If prices rise, then consumers have incentives to lower demand even more. So oil price needs to stay in a certain range so both buyers and sellers can do business.

The cost of fracking oil has apparently come down over the last five years, which is good.....cutting costs is the name of the game for producers like Exxon.

Global conflict makes the price of oil skyrocket. War is good for oil....the bigger the war the more it matters.

So.....a lot of variables are in play, many of which are either unknown or unforeseeable.

If oil price is volatile, then XOM share price is liable to be volatile too. I wouldn't ever buy it for a trade....I really don't care what the chart looks like.....but that's just me. I'm not nearly as nimble as the algo traders.....or even the average day trader. And being nimble matters. You could easily become road kill.

From an investor standpoint, the best reason to own XOM looks to me to be the dividend....and I do doubt it will be cut much unless the company is really on the rocks...which they aren't.

I don't own any stocks....not looking to buy any stocks....fun to think about, but I only buy tangible assets.

EGW
EGW

If XOM gets into the mid/low $20 range, it could be a very good value proposition. I don't think oil is going away anytime soon.

davebarnes2
davebarnes2

@PecuniaNonOlet
'I will now sit back and wait for boomers to chime in and say, “we will never get rid of oil and gas...blah..blah..blah.'
Well, not from this Boomer (age 72). EVs will take over and deliver cleaner air to metro areas. Solar/wind will continue to destroy dinosaur poop. Dino pee will be relegated to petrochemicals. Dino farts will continue for home heating, but better batteries at the utility level will reduce gas use for power generation.
Most people—except for Fat Donnie—want clean air, water, and land. We must reduce our use of dino waste in order to achieve these goals.

Maximus_Minimus
Maximus_Minimus

I haven't used Zoom, but I know some who used it for free. Question: how does Zoom make money by offering a free service?
Or to rephrase the question, how does Zoom plan to monetise personal data, when Google already does it. Will they knock down the price to consumer level?
Which tech giant will be able to buy Zoom at this valuation?

anoop
anoop

i have the correct answers for all 10 questions, but i don't want to spoil it for everyone.

Herkie
Herkie

First I want to start by saying the very premise of this post is false, it must be because I saw the president on TV last night saying how Covid is done, history, over, and he is responsible for the greatest economy the US has ever known.

Second point; yes FAANG stocks and Zoom and a lot of other companies are "worth more than Exxon," but is that a comment on Exxon? Or is that proof that the entire equity market no longer has any rational price discovery?

A 10.67% yield in a negative real return world is insanely high, why are buyers not bidding up shares of Exxon to get that return? Don't you think it is telling that they are not a takeover target for Saudi Aramco or some other oil big? In fact those other companies also see the calandar running out on them as well.

All your questions related to demand, about phasing out fossil and oil, yes that is going to happen, is happening, California for example just passed a law requiring that no new oil based motor vehicles will be sold there in 15 years. What do you think that will do to the resale value of all existing ICE vehicles out there? Yes they will still be legal to own and sell, but who would want one when gasoline or diesel is tripled, quadrupled, or more? When you may not even be able to find it?

What California does today others will (have to) do tomorrow. The "value" of oil giants and their fields will drop over time even as prices at the pump will rise over time. There are trillions and trillions of dollars invested in oil companies and oil infrastructure, from wells, to refineries, to pipelines, to millions of gas stations with all their tanks and pumps and etc. The price of a gallon of gas for everyone not just Californians, is going to skyrocket, and I predict the states or federal government will be forced to take over and maintain that industry, or at least subsidize it because people have so many trillions invested in fossil powered motor vehicles that when investors ditch oil company stocks those vehicles are going to be dead without fuel. This could happen next year, or in 10 years, but the day will come when oil investors just sell off and buy Amazon shares. Leaving hundreds of millions of cars and trucks useless. California (and other) governments want fossil phased out, but how do you force investors to sit by and watch their investments be phased out? They are headed for the doors already. Without their investments the corporations cannot stay in business, so rather than an orderly phase out over 15 years what California just did was order the execution of oil companies. Cars may not be bone dry this year, but gas prices are going to become unaffordable for all but the wealthy and sooner than you will believe. Only government has deep enough pockets to do a prolonged phase out of one of the largest industries on the planet.

With oil being phased out just how well do you think those oil assets are going to be maintained? Who will dump the millions per year into refinery maintenence? Who is going to pay to clean the restrooms or unplug vandalized toilets at gas stations? If you were in charge of making the financial decisions for such companies and knew your days were numbered would you bother to repair a refinery that had an accident? Would you be building any new stations? Or would you be retiring assets as they wear out and just never replace them?

California is about 14% of the US energy industry market. They just said no new fossil powered vehicles after 2034. Energy companies cannot lose 14% of their market and stay viable. So California might as well have passed a national law ending fossil because those companies cannot do business in the rest of the nation without that largest state economically speaking. Of all industries in all of capitalism the single most dependent upon markets of scale is oil. The investments are just too huge to get by on less than universal energy dominance.

This is not just about Exxon either, it puts Ford, GM, and other car makers on notice that they are going to be extinct within 15 years if they do not switch to electrics. So wether the technology is ready or not in 15 years the internal combustion engine is going to be history. Of course hobbyists will still tinker with old gas powerd cars, but they will not be able to use them for much more than antique car events. Most older cars will be sculpture rather than transport. There will still be a very small amount of oil turned into gasoline for those people, but it will be the equivalent of about $40 per gallon by today's standard. That is a lot of infrastructure and expertise to maintain for a few thousand car hobyists, the price is going to be ruinous for most people.

I think the market is already agreeing, if not leading, the verdict that oil is over. Ah the irony when a new natural ice age starts and they will do anything to up CO2 in the atmosphere to try to soften that blow, they will recreate the entire industry to do it at a cost of so many trillions. Fortunately I cannot live that long, but there are people alive today that could live to see it.

Doug78
Doug78

It's because Zoom has rarity value in its captive customer base where oil and gas companies are, as are oil and gas deposits generally, ubiquitous.

Scooot
Scooot

I see Exxon’s share price is down nearly 70% from its highs, despite all the Government stimulus.

Dodge Demon
Dodge Demon

George Gammon interview of Art Berman a couple a days ago on this topic.

Realist
Realist
  1. The dividend will be cut eventually.

  2. Fossil fuel companies will survive, but their long term fate is a slow decline, with occasional small recoveries along the way (coal companies are leading the way in this regard).

  3. Fossil fuel companies will decline on their own, from market forces. It doesn’t matter what the US govt (whether it’s Biden or anyone else) does.

  4. Who knows?

  5. Work at home is here to stay for many. Just another trend that has been accelerated because of the pandemic.In the short run, this reduces transportation fuel demand, but in the long run, more and more transport will be electric, powered mostly from renewables. Again, market forces at work.

  6. Electric cars will become viable when the cost/benefit equation works out in their favour. Again, market forces. They are already a cheaper alternative in some cases.

  7. Plane travel will rebound once the pandemic is controlled better world wide. But it won’t go back to previous levels as business travel will remain weak.

  8. Energy will rebound when market forces dictate. That won’t happen until the pandemic is better controlled. I would guess 1-2 years, but markets often anticipate in advance.

  9. Lots of write downs. Who knows how many?

  10. I am never arrogant enough to think I can time the markets. Long term, diversified investing has worked for me my entire life.

Realist
Realist

Regarding Zoom’s valuation. I said the same thing about Amazon in 1999 when it was worth more than all the book stores and publishers in the world at that time. It has gone up 30x or 40x since then. The future is hard to predict.

ToInfinityandBeyond
ToInfinityandBeyond

I don’t think stock valuations matter at the moment but that will pass at some point. And oil & gas usage is not going away any time soon although prices may come down to a point where only the lowest cost providers can survive.

Siliconguy
Siliconguy

The future of oil is plastic and all the other chemicals that come from it. And probably kerosene for the airplanes unless they are actually brave enough to ban air travel for the sake of climate change.

ColoradoAccountant
ColoradoAccountant

Submarines and aircraft carriers are powered by small nuclear reactors. Why aren't the trains?

William Janes
William Janes

Without Natural Gas Turbines, the solar and wind power industry does not exist. Solar and Wind Power lack the absolute essential key that any electric generation source requires: Dispatchability, the electricity is there when you need it. Solar and Wind require that Utilities have twice the generating capacity to produce electricity when the wind don't blow or the sun don't shine. Everything else is eco fantasy.

As for electric cars, when I can drive to St. Louis from my home (a six hour drive) without re-charging , then I will be interested. The Oil and Natural Gas Industry will be around for many more decades.


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