Zoom's (Over)Valuation?

Sales of 622 M is pretty low for successful enterprise SaaS startups of Zoom's size. For reference WebEx was 380M in 2006! and likely somewhat larger than 622M today.

I would actually say they are probably undervalued if you are looking at Zoom's long term prospects. Video Conferencing is here to stay as primary means of work communication, and as with any communication businesses like messaging and now VC market will consolidate towards few players - network effect and ease of use, and the friction in downloading and installing more apps all play a factor.

Zoom have not gained the paying customer traction they should be having in the Fortune 2000 kind of companies. Sales cycles in these companies are no so short to reflect within a quarter, and many of them have to readjust from existing

Market expects their sales to multiply few times in next few quarters, so do I and perhaps also you, the difference is how we each price growth and risk. I think the risk is low, and growth easily can be more than market anticipates as of today.

Their market cap / PE ratio implies that they could grow to net income around 2-4 billion per year. Apple is at ~11 billion, MSFT is at ~39 billion.

I guess it is plausible that with excellent execution they could somehow build a moat around their business and get to some type of monopoly status for video conferencing.

They do seem overvalued in that their current price indicates that they are on their way, there is little risk to that happening. But there seems to be huge risk, there are lots of competitors and I can't see how they differentiate enough to escape the competition.

I shorted Zoom last week and got burned losing about $500.

It's clearly overvalued, but when will it start to fall?

One thing that always rubbed me the wrong way about looking at PE ratios is that a lot of stocks don’t pay you directly from their earnings (unless they have a dividend).

In other words, so what if the PE ratio is 1000 or 10 or 5? You as an investor aren’t going to get a piece of their earnings in any case. You only get paid when you sell your shares to someone else.

Yes I just described the Greater Fool Theory...

I honestly don't understand the current levels of trust into the stock market... The economy is in a massive contraction, but the Dow Jones (and many other indices) are close to the levels they were around this time last year. How does that work?

While comments are talking about growth potential, and considering revenues instead of earnings, and “network effects” as a moat, I’m reminded of Steve Jobs’ zinger on Dropbox which might equally well apply to Zoom... “it’s a feature, not a product.”

I don’t see any reason why motivated players like Microsoft and Google cannot catch-up with better offerings integrated with their Office/Apps suite.

Who wants to build a competitor and get bought out with all that cash they have? Lol.

The PE ratio might not be the best metric to judge Zoom by. Their gross profit was ~500M while net profit was only 12M almost entirely due to the SG&A line item.

At first read, they're pouring every dollar of profit into their sales/marketing organization so they can continue to grow at over 100% YoY. As a first order SWAG, the market is pricing in something like 5x growth over the next 5 years while ratcheting down SG&A as a percent of total cost. If Zoom executes successfully, they maybe ends up with a PE closer to 15.

Or maybe every enterprise realizes Teams is bundled with O365 which they're already paying for and stops licensing Zoom as individuals return to the office. The implied volatility for at the money calls on Zoom expiring Jan 2022 is over 60% while the broader S&P 500 is around 20% for options with similar expiration. Seems like the risk is priced in.

Over the last decade, Zoom was the first video conferencing tools that mostly "just worked" that we tried at work. One of our founders would more than half-seriously say "my next venture will be fixing video conferencing." He stopped saying that after we started using Zoom.

As for the valuation, yeah, that is wild. It very well could be divorced from reality.

These high-growth software companies trade at a multiple of revenue, not earnings (for a variety of reasons), so PE is not a relevant metric. It is growing 170% YoY and had arguably the best quarter in enterprise software history. Not to say the valuation is justified, but given its current growth, outlook for the rest of the year (doubled revenue guidance), and large TAM coupled with how other high-growth software companies (DDOG, CRWD, TWLO, WORK, etc) are trading (at or above all-time-highs), it doesn't seem as crazy. Also, Zoom has been a low beta stock in recent months, which is valuable in most portfolios that are generally beta >=1, especially when markets are volatile.

I am not someone who disagrees with you, so sorry for that. Agreed that the PE ratio is bonkers.

They were in the right place at the right time. But the landscape is changing quickly, with WebRTC finally solid and more or less ubiquitous. Security and privacy are also top of mind for many, and Zoom has quite some baggage there.

I purchased Zoom during its IPO, then sold half my stock @ 105, then sold the remainder @ 62. My thinking was, "if the stock is this volatile, how will it do during a recession?"

Sigh.

Right now, I think buying Zoom is, even with the outrageously high P/E ratio, might still be worth considering. I would look at growth and profitability over P/E. Zoom's breaking into Fortune 100-200 companies with strong momentum, and there's really no structural issues it needs to deal with. The current stock price makes sense if you take into account future growth; worst case scenario, it corrects and it'll make it up after a few more strong quarters.

Zoom is getting more publicity now than ever before. When you think video conferencing, you think zoom. It may be overvalued now but not in terms of future perceived growth and that's what counts. When you look at growth rate, you see that it's growing very fast. Keep in mind that YouTube and Instagram where booth thought to be over valued at one time but look where they are at now.

My suspsion is that they will get better at monoterizing their platform. The fact is that it's a popular player in an increasingly important industry. I would not count them out.

PE ratio is a poor indicator, as startups tend to have more room for growth, and you should be comparing them to other startups and young tech companies, not Microsoft.

However, most startups have a PE of hundreds. 1300 is a bit overpriced, I agree, and I don't see them opening up any new business models even with total monopoly.