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What goes up has (mostly) come down

What goes up has (mostly) come down

On the 31st of December 2019, Zoom closed at just over $68 per share. The company listed earlier that year in April 2019 with an IPO price of $36 per share.

As has been the case with growth stocks in the US, the crowd went wild and the price closed 72% higher on the day of the IPO at $62. It returned a modest 10% over the next 8 months or so, a respectable return.

In case you want to pull this chart yourself, make sure you are looking at the ticker $ZM. There are other companies with Zoom in their names that have nothing to do with the Zoom logo that became an all-too-familiar sight on our laptop screens during the pandemic!

Speaking of the pandemic, the world went mad over that period in more ways than one. Zoom’s share price closed at $568 on the 19th of October 2020. In the space of less than 10 months, it had increased in price by 8.3x! That’s an increase of 730%, creating an extremely rare “eight-bagger” for investors.

I’ve carefully used the word “price” rather than “value” here, as it wasn’t difficult to see that the market had lost its mind. A revenue multiple of 120x is only ever going to end in tears. At time of writing, the revenue multiple has plummeted all the way down to 8.7x, which still looks expensive. The share price is just under $120, nearly 80% lower than the peak in October 2020.

Sanity seems to have somewhat prevailed, although my personal view is that Zoom needs to drop into the $80s before I’m willing to have a go at the stock.

This doesn’t make Zoom a bad company. Allowing the price to drive the narrative is one of the biggest mistakes anyone can make in investing. It wasn’t the saviour of mankind at $568 per share and it isn’t the worst company in the world at $120 per share.


The pandemic has created strong demand for hybrid working environments, evidenced by the worrisome numbers we are seeing from listed property funds. There are now as many white elephant office buildings as there are real elephants in the wild.

This is good news for Zoom, as the company’s tools help people connect with one another. With a focus on enterprise clients going forward, it is facing stiff competition from the likes of Microsoft and Google. Zoom competes based on specialised products rather than offering a broad productivity suite like its competitors e.g. Teams within Office 365.

The significant challenge for Zoom is that its margins are coming under pressure. The war for tech talent in the US is underway and is driving substantial increases in staff costs for companies. With only modest expectations for the next 12 months in terms of revenue growth, the market is worried about operating margins and with good reason.

But one thing is for sure: Zoom has become a verb. Not many brands can say that.

Another brand that was a relative winner in the pandemic is Netflix. The concept of “Netflix and chill” is ingrained in popular culture. Much like Zoom, the share price over the pandemic was anything but chilled.

It may come as a surprise to you that Netflix has been trading on the Nasdaq since 2002. It started life as a DVD rental company and achieved strong gains in its share price in its first decade as a listed business.

On a long-term chart of $NFLX, that period disappears into obscurity in comparison to the share price action during the pandemic. On 31st December 2019, Netflix closed at over $323 per share. It peaked on 17th November 2020 at over $691 per share. That’s not the meteoric (and subsequently disastrous) rise of Zoom, but a return of over 113% in the space of less than 11 months isn’t to be sneezed at.

At time of writing, Netflix was trading at $382 per share, a level we last saw in February 2020 just as the pandemic was taking off. It peaked at a revenue multiple of around 10.6x and is trading at 5.7x at time of writing.


The trouble with Netflix is that all the revenue in the world doesn’t help if there aren’t free cash flows dropping out the bottom for investors i.e. cash profits net of capital expenditure on content. The content creation game is a difficult and expensive one. Drive to Survive probably doesn’t cost much to produce, but Netflix has also followed a strategy of trying to create blockbuster movies that star Leonardo di Caprio. He doesn’t come cheap.

Without the benefit of a box office release, it is difficult to make money from movies released to a captive audience of subscribers. Netflix would probably be better off just focusing on series and documentaries.

If we compare the current share prices to 31st December 2019, Zoom is up 75% and Netflix is up just 18%. The trouble for many new investors is that they bought shares towards the peak in the latter half of 2020 and have suffered substantial losses.

As always, a successful investment is a function of what you buy and how much you paid for it.

The Finance Ghost does not hold shares in either Zoom or Netflix.