Not many stocks can claim to be up as a result of the coronavirus but Zoom Video Communications (NASDAQ: ZM) certainly can. They’re a San Francisco company and provide cloud-based, remote conferencing services that companies purchase to allow their employees to run online calls, interviews, meetings etc.
Through the start of this year, their shares had been under a decent bit of pressure. Having IPO’d in April last year, they’d rallied close to 50% by June. However, some disappointing earnings saw them give up all those gains and they were back trading at their initial public price by last December. Then the coronavirus struck and, taking precautionary measures, more and more companies announced that their employees were to work from home indefinitely. Many schools and universities have shut for the rest of the semester, with students being promised that there will be online classes and tutorials.
Seismic Workplace Shift
As the likes of JP Morgan, Google, Amazon and Twitter have also called on as many of their tens of thousands of employees as possible to work from home, investors were quick to scout around for stocks that might benefit from such a surprise cultural shift. A tool that allows for crystal clear video and audio communication was high on the list. Zoom shares caught a bid out of the gate in early January and have only gone higher as the crisis has worsened. By last Thursday, the stock was trading at all-time highs after rallying more than 100% from its December levels when many bears were looking forward to it sinking to all-time lows. You just never know.
Even though there has been a growing trend in companies allowing employees to work from home at will or to be permanently remote-based, investors might be secretly thanking their lucky stars for such a surprise and immediate shift in workplace habits. Fundamentally, Zoom has struggled to impress them with its earnings in recent quarters. In the midst of the current rally, the company released its Q4 earnings after the bell last Wednesday and even though their numbers beat analyst expectations, shares still sank 10% in after-hours trading.
Revenue jumped 78% year on year, cash flow was up 130% year on year while non-GAAP EPS came in higher than analysts expected by 114%. Their Q2 earnings last September had been equally impressive on paper, with year on year revenue growth of 96% but that didn’t stop shares falling 5% after the release. It looks like investors have high expectations and that Zoom isn’t quite meeting them just yet. Like many other freshly IPO’d companies, e.g. Lyft, Uber and Smile Direct Club, is it possible that they over-promised in their pre-public days? That being said, JP Morgan was out after the release with a fresh price target of $150. This would mean shares have almost 40% more room to run so there’s at least one bull in their corner who’s impressed.
The Perfect Hedge?
No matter, for now, everything seems to be going right for Zoom and they’re not alone. The likes of Slack (NYSE: WORK), Citrix Systems (NASDAQ:CTXS) and Atlassian (NASDAQ: TEAM) are some of the other popular stocks benefiting from the work-from-home announcements. Similarly, shares of video game companies like Activision (NASDAQ: ATVI) have been able to catch a well-needed bid while the stocks of food delivery services such as GrubHub (NYSE: GRUB) are also weathering the storm better than most.
As US markets officially enter bear market territory and Wall Street raises a glass to the longest bull run in history, most investors are busy battening down the hatches and planning to ride the volatility out from the safety of treasuries and gold. For those that are intent are keeping some skin in equities, you could do worse than back a company whose business model is based around what was a growing trend of employees working from home and has, almost overnight, become the de facto modus operandi.
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