Weekly Briefing 9/13/20


To state the obvious, Zoom has a great product that has exploded in the wake of Covid-19. Many businesses and school’s have incorporated Zoom into their daily routine. However, when we talk about the product and its present valuation, the picture doesn't look so bright. Many other platforms such as Google, Microsoft, and Facebook are currently expanding their video platforms and offering them free of charge. There is plenty of competition out there and more is coming. 

Zoom's current enterprise value is a staggering $80 billion dollars. Enterprise value offers are a more accurate estimate of takeover costs than market capitalization, because it includes a number of other important factors such as preferred stock and debt while backing out cash reserves. Zoom’s EV to sales ratio is a staggering 90 to 1. Consider that Amazon, the darling of the tech and e-commerce world, trades with a 5 EV to sales ratio. We would not suggesting shorting Zoom as markets can stay irrational longer than you can stay solvent, but if it's part of your long term portfolio, you might look at reducing or selling the position. When the Sales/EV ratio gets back to under 10, that would be a safer region to accumulate. It is currently priced for perfection in a market that is extrapolating zero competition which will not be the case. The first miss reported by Zoom should trigger a bloodbath event in the stock price.

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