
Zoom's (Over)Valuation? - benkarst
Zoom has a 65B billion dollar market cap with a sales of 622M. The PE ratio is at 1300. Comparatively, Microsofts PE ratio is around 30. As a software engineer, I don&#x27;t see their product as particularly unique or difficult to duplicate.<p>Their stock price is has jumped from 68 in January to 238 in June.<p>In my opinion, it&#x27;s one of the biggest valuation bubbles I&#x27;ve seen. I want to hear from people who disagree with me.
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manquer
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.

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Barrin92
I don't see network effects at work here. Network effects function by
increasing the value of the product itself simply because there are more users
on the network, that is to say, the users contribute value to the network
itself, for example, because they generate the content others consume.

If you have more people on Zoom you just have... more people. Conferencing and
video software don't really have a lot of moat. Skype, Teamspeak, Mumble,
Google Hangouts, Discord etc.. there's always been plenty of competition and
churn.

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manquer
How many apps for video conferencing you have installed ? I have at least 10
(zoom, Webex , teams , Skype for business , Skype , chime , ring central ,
blue jeans , slack, Hangouts, ..) I am not including non work related ones
like FaceTime or WhatsApp etc either, Each one requires additional effort to
setup and use. It is like Office , more people using the same app , makes it
more attractive to use .

for example if half my customers already use zoom , I would seriously consider
it even if it was costlier

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nknealk
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.

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AznHisoka
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...

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CyberDildonics
Or when the company is sold

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sethammons
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.

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saastistics
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.

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bakuninsbart
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?

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qorrect
I think the markets have stopped being a barometer for the economy for a while
now. Personally I'm just "getting while the gettin's good" , I'm guessing a
lot of people are the same, if it's still making money why stop ?

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idoh
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.

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manquer
Network effect is the moat they need. i.e. it is easier to the use the
solution that everyone uses, nobody wants to install 10 different vc apps.

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ssivark
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.

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hejja
this. even sans integrations, video conferencing is far too commoditized for
zoom to be in a defensible position.

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montroser
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.

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yingw787
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.

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WheelsAtLarge
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.

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muzani
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.

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

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

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idoh
"The market can remain irrational longer than you can remain solvent."

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

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muzani
Microsoft and Google can't, so good luck.

