The stock with a Zooming share price
It’s the technology stock taking over people’s homes as Australia moves to remote working and study but Zoom Video Communication may not be a ‘buy’ as much value is already priced in.
The company, which offers video conferences and online meetings for employees and students, has seen a 125% rise in its share price since the start of 2020 as COVID-19 saw thousands relocate to remote working.
Many Australian companies have told their staff to work remotely while universities have moved to online learning. Schools are still open, at the time of writing, but may be closing in due course. In light of this, many were switching to using Zoom instead and the company had offered its services to schools for free in many countries.
Zoom was founded in 2011 and was headquartered in San Jose, California by Eric Yuan. In 2017, it was classified as a ‘unicorn’ with a US$1 billion ($1.65 billion) valuation and it listed on the NASDAQ in March, 2019.
Its market cap is around US$41 billion and for the year ended January, 2020 it had revenue of US$622 million and US$22 million profit.
But for those investors hoping to make some money from this trend, Cameron Robertson, co-manager of the Platinum International Technology fund with Alex Barbi, warned they were now expensively-priced stocks.
“Zoom’s shares have doubled since the start of the COVID-19 outbreak and are now quite expensive in our opinion,” Barbi said.
Longer term, we also think they face increasing competition from companies like Microsoft which has been investing in improving Skype.
“While Zoom is a great company with a bright short-term outlook, we believe the shares are already pricing this in, so we would not be buying here. The business will grow a lot but paying over US$40 billion for it strikes me as excessive.”
AUTHOR
Laura Dew
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
