Cathie Wood picked up some shares of Zoom (ZM) this week after an earnings related meltdown.
For the founder, CEO and CIO of Ark Invest, the $56 million purchase was a no brainer given the importance of Zoom to the future of communication.
“We think there is a transformation taking place in the communication sector. Many people think of Zoom as nothing more than these video sessions. But it’s becoming much more than that. We think it’s going to, with the Zoom phone, take over the PBX system. In other words, it is going to start taking more share of the communications stack in technology. Enterprise communications is a $1.5 trillion opportunity, and we believe that Zoom is on its way to usurping the role of players like Cisco in the years ahead. It’s a very big story. It is not just about video and stay-at-home or even hybrid — it’s much bigger than that,” Wood said on Yahoo Finance Live in an exclusive interview.
That may well be the case — after all Zoom was Yahoo Finance’s Company of the Year in 2020 for a reason. But investors have taken a bit of a pause on the stock as they try to determine what a post-pandemic Zoom looks like financially.
Zoom shares crashed 17% to $289.50 on Aug. 31 after a mixed second quarter and outlook.
The company saw slowing sequential growth rates in customers spending in excess of $100,000 a year with the company (131% in the second quarter versus 160% in the first quarter) and spending with 10 or more employees (36% growth in the second quarter versus 67% growth in the first quarter).
“I think we were talking about most of us are probably socializing in person now, doing fewer things like Zoom Happy Hours, and that’s where we are starting to see some of the challenges,” acknowledged Zoom CFO Kelly Steckelberg on an earnings call with analysts.
The steep sell-off pushed shares of Zoom deeper into the red for the past year, down about 30%, according to Yahoo Finance Plus data. Over that same span, the S&P 500 has tacked on 27%. The Nasdaq Composite has surged 28%.
Wall Street analysts are taking a mostly guarded view on Zoom in the near-term, even though many acknowledge the company will benefit from the long-term shift to hybrid work as Wood suggests.
“Numbers largely affirm market concerns about churn and signs of slowdown in enterprise business too with large deals moving back into a normal cycle,” said Morgan Stanley analyst Meta Marshall in a research note. “More bullish views likely to be reined in for now but remain confident on the long-term platform attractions and growth potential.”
Added Wood, “One of the reasons they got their nose under the tent is because of what happened during the coronavirus. This was the best performing communications tool we had, any of us. And now they are just going to move forward very dramatically, we think, from there.”
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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