Tuesday, 17 November 2020

Zoom - Portfolio Addition


Before Covid I suspect not many people would have heard of this company...today almost everyone has heard of it and many will have installed the app for virtual meetings during lockdown.

The company was founded in 2011 with HQ in California (where else...?). It provides online facilities for video conferencing via its cloud-based software. Obviously the Covid situation has provided a unique opportunity for the company providing face-to-face communication solutions for governments, businesses, organisations and groups of people to meet up in a virtual online world.

The company went public in April last year raising $750m and shares priced at $36. Today it is worth over $100bn

Demand for their video conferencing software has surged as many countries around the world entered lengthy periods of lockdown and we were told to work from home. It has quickly morphed into a social norm as it became the easy way to keep in touch with family, friends and work colleagues via zoom.

The key to the surge in demand is that the basic package is free but also it is intuitively easy to use. Conversations can be one-to-one, one-to-many or many-to-many. On a larger scale, Zoom webinars allow customers to conduct large-scale online events such as conferences and town hall meetings for up to 10,000 view-only attendees and 100 panelists.

Of course, as more and more people routinely use Zoom, there have been concerns over privacy and the company have recently introduced their end-to-end encryption software to address these issues.

Results

The company announced Q2 results in August and record revenues of $663m an increase of 355% year-on-year. Free cash flow was $373m compared to $17m a year earlier and cash in the bank of $1.5bn at the end of July 2020.


12 month share price


The share price has really taken off this past year rising from under $100 in January to over $500 by October. However, the price has retreated sharply in recent weeks following the announcement of two Covid vaccines and a light at the end of the tunnel for recovery from the global pandemic.

The company is due to release Q3 results on 30 November.

Obviously there will be competition from the likes of Google, Microsoft and Facebook but I am hoping Zoom now has a secure foothold in this market and can make further progress. I also would not rule out the possibility of takeover activity in the coming year.


Increasingly over the past year I have started to adopt the twin strategy of technology and climate-friendly green for my investments. I strongly believe they will provide the best opportunities for returns over the coming decade and beyond. These shares will not form part of my green portfolio but clearly any technology which reduces the need for travel on a global scale is good for the environment and tackling climate change.

I may be wrong, but I take the view that many of the new practices we have been forced to adopt due to Covid will continue after the pandemic has passed and I believe the video conference offered by Zoom will be one such habit. I added the shares to my ISA earlier this week at the price of $385 (approx. £290). The funding came from a partial sale of some Plug Power shares which have had a remarkable run since purchase @ $11.40 in September to $25 today. This means the Zoom shares are effectively free which makes the purchase at these lofty levels a little easier.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

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