Coronavirus restrictions are making Zoom (NASDAQ: ZM) one of the hottest stocks and communications tools around.
Zoom claims over 300 million people participated in its video meetings each day on 22 April 2020. However, The Verge alleges Zoom changed that claim from “more than 300 million daily users” to over 300 million meeting participants.
Hence, Zoom Video Communications Inc. (NASDAQ: ZM) engages in the common Silicon Valley practices of fuzzy statistics and misleading terms. However, The Business of Apps claims the number of Zoom user participants rose from 10 million in December 2019 to over 200 million in March 2020 to over 300 million in April 2020.
Zoom’s Incredible Growth
In contrast, Zoom had only 12.9 million monthly active users (accounts) in February 2020, The Business of Apps estimates.
However, Zoom is capable of incredible growth. The number of Zoom downloads grew from 56,000 in January 2020 to 1.7 million to 2.13 million in March 2020, The Business of Apps claims.
Specifically, the number of Zoom Daily Active Users (DAU) on Android devices in Italy grew from 12,000 in February 2020 to 136,000 in March 2020, Statista estimates. Additionally, Zoom’s DAU in the United Kingdom rose to over 770,000 in May 2020, Statista claims.
“Growth and value investing are joined at the hip.” – Warren Buffett.
Therefore, Zoom meets one of Warren Buffett’s criteria for a value investment. Zoom is growing dramatically at a time when many businesses are shrinking or dying.
Does Zoom Make Money?
Zoom (NASDAQ: ZOOM) made some money before coronavirus. Zoom reported a quarterly gross profit of $155.7 million and a quarterly operating income of $10.55 million on 31 January 2020.
Those numbers grew from a -$1.68 million quarterly loss and a $135.75 million quarterly gross profit on 31 October 2019. Moreover, Zoom’s quarterly revenues grew from $105.80 million on 31 January 2019 to $166.59 million on 31 October 2019 to $188.25 million on 31 January 2020.
Therefore, Zoom was capable of significant growth before the coronavirus pandemic. For instance, Stockrow estimates Zoom’s revenues grew at a rate of 77.9% in the quarter ending on 31 January 2020. Impressively, Zoom’s revenues grew at a rate of 84.85% in the quarter ending on 31 October 2019.
How Much Money is Zoom Making?
Stockrow estimates Zoom’s quarterly net income grew from $2.21 million on Halloween Day 2019 to $15.34 million on 31 January 2020.
In contrast, Stockrow’s operating cash flow fell from $61.93 million on 31 October 2019 to $36.55 million on 31 January 2020. Additionally, Stockrow’s ending cash flow fell from $65.80 million to $52.25 million in the same period.
Moreover, Zoom borrows enormous amounts of money. For instance, Stock reported a $524.25 million quarterly operating cash flow on 30 April 2019. That number fell to $51.48 million on 31 October 2019 and $19.07 million on 31 January 2020.
Cash from financing is important because it shows how much money Zoom borrows. Plus, cash from financing shows Zoom’s capability to borrow money.
Thus, I think Zoom can borrow the money it needs fast. That adds to the margin of safety.
What Value Does Zoom have?
Zoom had $855.19 million in cash and short-term investments on 31 January 2020. That amount grew from $176.4 million 31 January 2019 to $811.40 million on 31 October 2019 to $855.19 million on 31 January 2020.
Moreover, Zoom reported total assets of $1.289 billion on 31 January 2020. That number grew from $354 million on 31 January 2019.
Thus Zoom was delivering a high-rate of growth before coronavirus. Hence, Zoom’s value growth rivals its frantic share value growth.
Is Zoom Overvalued?
I cannot tell if Mr. Market overvalues Zoom Video Communications Inc. (NASDAQ: ZM).
Conversely, if you invest for income, Mr. Market grossly overvalued Zoom at $207.60 on 5 June 2020. To explain, Zoom’s share price is high, but Zoom makes little money and pays no dividend.
However, if you invest for growth, you can say Mr. Market gave Zoom a fair price. In 2020, Zoom’s price rose from $66.72 on 2 January to $219.09 on 3 June 2020 to $207.60 on 5 June 2020.
Hence, if you invest only for growth, Zoom is a great stock. However, Zoom is a terrible stock if you invest for any other criteria.
I advise that only investors who can afford to lose money and want a high level of growth buy Zoom stock. I think everybody else needs to avoid Zoom because it makes a little money.