![]() ![]() For starters, I believe that Zoom can keep growing its customer base, as evidenced by how the company continues to add new customers sequentially even as it laps impressive gains from earlier in the COVID-19 pandemic. When it comes to Zoom specifically, I agree directionally with many of Ark Invest's assumptions. Simply ask yourself how many assumptions can be wrong before the thesis is invalidated entirely. Investment theses are often wrong in the details and yet are still indispensable. That means Ark Invest is expecting the valuation to nearly double, which seems unreasonable. ![]() Consider that Zoom stock currently trades around 20 times its adjusted FCF. And a stock trading at 37 times free cash flow (FCF) has a generous valuation. Specifically, I find it unlikely that Zoom will grow revenue as fast as Ark Invest forecasts. The same goes for Wood's thesis on Zoom - at least something won't play out as foreseen. Communications Video Conferencing Software Zoom Launches a Virtual Events Marketplace It's a way for paid Zoom users to virtually 'create, host, and monetize events.' (Photo via Zoom) Between work. However, every investment thesis will eventually prove somewhat wrong because humans aren't omniscient. Therefore, an investment thesis provides a tangible measuring stick. Without a thesis, investors can't discern if things are going right or wrong because the stock price isn't a reliable indicator in the short term. Zoom's business hasn't fluctuated as much as how the market feels about it. Since going public three years ago, it's traded as low as $62 per share, to as high as $568 per share, and all the way back down. ![]() Zoom stock itself is exemplary in this regard. In the short term, stocks are volatile, trading outrageously higher and depressingly lower as investors' emotions bounce around. ![]() And the model expects the stock to trade at 37 times this FCF. In Ark Invest's model, Zoom would be generating about $52 billion in annual revenue in 2026 at a 26% free-cash-flow (FCF) margin and have a market capitalization of around $510 billion. So the model is calling for $13.5 billion in FCF, which would be outstanding. For perspective, Zoom's management expects 11% revenue growth this year at best. Therefore, growth would have to drastically accelerate in subsequent years to remotely approach Wood's projections. That's about a 65% compound annual growth rate (CAGR) for revenue. Ark Invest expects Zoom to more than septuple its revenue over four years. ![]()
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