Zoom has been on an otherworldly tear. Some might say Zoom was just in the right place at the right time, but I would argue they put themselves in that place, then took full advantage. Zoom’s growth is far more about Zoom than it is COVID.
The financials are absurd. FCF of $356M on $664M in sales in Q2. Sales are growing QoQ at 355%. The offset to these absurd financials are a rich valuation at PE (NTM) of 152.6. Is this a fair valuation? A discounted cash flow will show the reality which is… it depends on what your growth assumptions are. The market doesn’t know how to value companies like these, so medium growth over a medium term gets priced in.
Can Zoom beat the markets expectations and continue it’s torrid pace? Maybe but optionality would surely help! Zoom always did have some optionality as you can see below. However, none of these really seem different to me.
But then Zoom rolled out On Zoom. It’s a marketplace for online events. On Zoom makes sense… it’s different but leverages their existing expertise. To me, this is what Zoom needs to keep growing. Nothing helps continue revenue growth like new revenue streams.
Some people might think you are too late, but the reality is great businesses grow for decades not years. If Zoom is legit, this is just the start. I’ve been impressed with Zoom’s execution and forward looking nature. That being said, COVID definitely played a role in the financial growth and it’s impossible to say how this will all play out in the future. The uncertainty risk has me nervous, but I’m intrigued by the business, so I’ve created a starter position. I’ll keep averaging in if I like what I see.