Zoom may permanently alter business travel
Zoom's share price was up approximately 40% last week.
Work-from-home protocols, tele-commuting, webinars and virtual meetings may permanently alter business travel, which accounts for a significant portion of aviation revenues. Zoom isn't the only winner here. Given the restrictions on daily commuting, technology has become an enabler of businesses and lifestyles. Many tech-related stocks ranging from cloud computing, e-commerce to data security have benefited greatly as a result of this migration to the digital realm.
Early investors in Zoom and other tech stocks were lucky. But one might wonder if it still makes sense to even buy its shares. At its peak, Zoom traded at more than 2,000 price-to-earnings, implying a dividend yield of 0.05%.
“Our ability to keep people around the world connected, coupled with our strong execution, led to revenue growth of 355% year-over-year" - Zoom's recent earnings call
Clearly investors are not buying technology stocks for their dividends.
Everyone who has a positive rating on the sector is valuing it based off the scenario that we won't be returning to our offices soon. Not at least within the next 12 months.
A few months ago, people had already been speculating about a second wave. This has since emerged in several major cities - South Korea, Hong Kong and Japan. The effect of the virus is also festering down south in Australia where it is currently winter. Governments are holding their breath in anticipation of a third wave towards the year end.
For now, it doesn't look like the nightmare of travel bans and city lockdowns are easing anytime soon. This virus could linger around for a few years and you could be using Zoom for a longer time than you think.
Right place at the right time
Using Zoom underscores the innate desire to engage in a face-to-face setting. Apple has tried to do this with FaceTime in the peer-to-peer context. Skype has video calls. Polycom even offers an immersive platform which is targeted at large corporates with the budget to invest in virtual-presence-type meetings. Doing so allows their professionals based in multiple cities to communicate in real-time without the need to fly to a single location.
While these paid-for-service features have not been cheap, corporates weigh the trade-off between the cost of a business class air ticket vis-a-vis the cost of an enterprise-grade platform.
Video conferencing is not state-of-the-art tech. But Zoom was caught in the right place at the right time. In a world without safe distancing and masks, demand for real-time video communications and webinar broadcasts might never have evolved into the defacto standard today.
Unlike Polycom, Zoom had somehow managed to make tele-presence accessible easily and quickly for everyone across all budgets during a time where the world needs it the most. Albeit the initial security issues that surfaced as a result of its popularity, the app continues to serve its main purpose of facilitating conversations between people and it connects seamlessly. More importantly: it just works.
Figure 1 Apple's WWDC in 2011
Maybe it's Apple's iCloud ecosystem, or the make of the phone. Or maybe there's something enigmatic and addictive about its minimalistic design that appeals to a certain group of users.
And just like how people are drawn to the allure of Apple's simplicity, if there's anything that Zoom has gotten right, it is probably the ease of installation and use.
More important than usability, the majority of governments and organizations around the world have also mandated extended periods of work-from-home procedures and no physical client meetings. Very draconian you say, but who can afford the socio-economic risk of a second lockdown?
What happens when the show is over?
After this pandemic is over (either through herd immunity or via a vaccine), I am guessing that most people would still use Zoom in their day to day work, but the real question is how many will continue to pay for its enterprise grade functionalities? Keeping in mind our nature to physically engage another human being in person, we will probably forget the pain of the initial lockdowns, ditch the newly formed "work-from-home status quo" and revert to air travel, physical meetings and mass events.
But in the current day where airline stocks continue to battle for survival and media reporting new cases daily, it is easy to rationalize why Zoom can trade at 2,000 times earnings.
Investors and stock watchers can be restless and impatient people.
In 2013, CEO of Apple, Tim Cook, told the media that "some really great stuff [was] coming in the fall and across all of 2014". This was equivalent to saying: "We've got nothing for you this year, but stay tuned next year!". Analysts and investors listening to the briefing were unimpressed and Apple's share price took a mild beating.
Figure 2 "Surprise me"
Like the ubiquitous smart phone, video-conferencing tools are not cutting edge technology. It remains to be seen if Zoom can really deliver on growth through innovation, transformation and create sustainable value for its customers in the same way Apple had done with the iPhone.
The author is an executive director and founding partner of IJK Capital Partners, an investment and advisory firm focused on cross border opportunities within Asia.