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Zoom's Lesson for Tech Stocks

Tech Letter

All signs point to green – that is the big investing takeaway from Zoom’s (ZM) outstanding earnings report.

It also means you cannot be bearish technology stocks.

Investors can lose their shorts trying to short the monopolies of Amazon, Google, and now the mega growth video communications company Zoom.

I still maintain a nuanced strategy of neutrality with a tactically bullish stance because of the rapid run-up from the March 23 lows.

Zoom has been one of the stalwarts of the work-at-home revolution and the numbers back it up.

Quarterly revenue guidance was up a juicy 64%.

The stunning 169% quarterly revenue increase year-over-year are numbers that dreams are made of.

I would like any reader to dig through the collection of companies trading on the New York Stock Exchange and find me one that beat its quarterly revenue target by over 300% during the pandemic.

That is why you invest in tech and that is why you read my technology letter.

What does this really mean?

There is still money to be made in technology.

This isn’t just a fly-by-night, smash-and-grab ploy to only burn down tomorrow like a Potemkin village.

The staying power is real and the stay-at-home movement will be stickier than ever moving forward as companies cut costs, digitize to the extremes, and hope to stave off the next mega-crisis when it threatens to take the food off our tables again.

Even Zoom itself couldn’t wrap their heads around the dramatic transition from enterprise use to consumers' necessity to keep in touch with family and friends.

The company became the “can’t live without” app of the year and grew from 10 million users to over 300 million users this quarter.

If any analyst had them rated as neutral before, this was the signal to issue a buy recommendation.

It is without exaggeration to say these are the most impressive financial results I’ve ever seen in software, and likely will never be repeated in our lifetimes.

Fresh opportunities also come in the form of education and telemedicine as reasons for a bullish outlook moving forward.

Zoom will need to fend off competitive concerns from Microsoft and Google, but Zoom’s scalable technology and ease of use have created a strong moat around its business model.

The company has an installed base of 265,000 customers with 10 or more employees with ample chances to cross-sell its Zoom Phone and Zoom Rooms services.

There is a basket of stay-at-home stocks that have outperformed the market since the Covid-19 pandemic began, and I am highly convinced that Zoom is the purest way to play this theme.

Even as lockdowns ease, many workers will demand the new normal of working remotely.

A taste of a good life isn’t enough, and the coronavirus proved that companies could function just as well without the traditional cubicle and office space.

The biggest problem with Zoom’s shares is finding a reasonable investing entry point into the best tech story of 2020.

There is just not enough superlatives to say about Zoom and investors would need to wait for the stock to dip near resistant levels at the 50-day moving average around $160 to put new money to work in Zoom shares. 

tech investing

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