Is the Zoom Boom Over?

Mar 06, 2021

369 days ago, when we published our “Powering the Evolving Workplace” MegaTrends Report, I had no idea what was coming… just days later.

As you can see from that report, LikeFolio insights clued me in — I knew that remote work was seriously catching on.

But I never could have predicted the speed at which the world would be forced to implement these new approaches and technologies.

And then, of course, COVID happened. And everything changed.

Kind of.

It may be more accurate to say that everything sped up, at least in terms of consumer adoption of Work From Home (WFH) technologies.

Zoom Video Communications was one of the biggest winners of them all, gaining more than 229% in the year since we published that report:

Obviously, it’s been a good run for Zoom shareholders and LikeFolio members… but I’m more concerned with what is next for the poster child of WFH stocks.

Is “Work From Home” Still Working?

LikeFolio Consumer Tracking of “Working from Home”

When I look at the chart above, two things stick out to me:

  1. The “COVID bump” was more of a SURGE — you just don’t see consumer behavior shifts that dramatic in such a short period of time.
  2. The surge is over, and the trend has stabilized at considerably higher levels, currently reading 237% higher than we were at a year ago.

But Zoom stock is already priced for extreme growth.

With a P/E ratio over 150, investors are clearly betting on continued dominance from this young company.

But with the macro-trend of working from home stabilizing, is continued acceleration of growth realistic?

To help me answer this question, I looked at consumer demand for some of the other companies that have benefitted from the WFH trend in a big way:

The “QoQ PI” in the chart above stands for Quarter-over-Quarter Purchase Intent change — a critical indication of the recent change in consumer demand for each of these companies.

As you can see, the trend is not good for this sector.

Microsoft, Logitech, Slack, and Autodesk are all showing negative readings, with Upwork as the lone warrior putting up positive consumer demand growth over the last 90 days.

This tells me that it’s likely that consumers already have what they need for a work-from-home setup.

When I combine that data with the flat trajectory of the overall WFH macro trend, it tells me that Zoom is likely to have a difficult time living up to Wall Street’s extremely high growth expectations.

Playing Zoom From Here

Earlier this week, Zoom posted very impressive numbers in its earnings report.

But the post-earnings reversal in ZM shares (moving nearly $100 down from weekly highs) could be a canary in the coal mine, warning us that Wall Street is also becoming skeptical that Zoom can pull off its horizontal expansion plans.

Clearly, it’s going to be tough for Zoom to add new users at the same pace as it did during the 2020 surge.

Which means Zoom’s only option for continued revenue growth is to get more dollars for each user.

The company knows this, and has already announced plans to expand its videoconferencing technology platform into the email and calendar space in an attempt to further monetize its user base.

But that means competition. Big competition.

Because now instead of being a one-trick pony that others can play nice with, Zoom will be stepping into a new battlefield with Google and Microsoft, competing on similar feature sets for the same high-value clients.

That’s a big leap for a company that has spent the last year successfully navigating an unnatural surge in new users.

Bottom line: Zoom has a tough hill to climb to live up to the growth expectations that they’ve delivered over the past year.

For now, we’re skeptical. But as always, we will keep a close eye on consumer data for insights into this trend, and make sure that LikeFolio members are the first to know when consumer shifts on Main Street create big opportunities on Wall Street.

Andy Swan,
Founder, LikeFolio