Le billet of Monocle

SLOW DOWN

03 March 2021

For some companies, the pandemic has had a more than positive effect on their bottom line. Their stock prices followed suit.

That effect has now passed.

Operational figures are certainly higher than before, but growth is slowing down. This is the "slow down". And the multiples will have to do the same.

Take Zoom, one of today's stars.

The company just released its results and gave its guidance for 2021. Here they are:


Graph made by Binocle Limited. 

The blue curve shows the evolution of Zoom's results. The grey one shows the growth from one quarter to the other (what we should focus on).

With the arrival of the pandemic, Zoom had a crazy growth. Now, that's over and their forecast for 2021 clearly shows that. We are going from very high growth to low growth.

Impact on valuation? Zero...

Analysis: in the last quarter, Zoom earned (before taxes) $250M. So, on a yearly basis, we arrive at about $1.0bn of net income (with some growth and adding taxes). If we pay that 40 times earnings - let's be generous (Pfizer pays itself 10 times earnings) - that's a value of $40bn.

However, tonight, Zoom is worth $130 billion.

This additional $90 billion is the market's belief that: 1) Zoom will continue to grow (although you might say that everyone who needs to be on Zoom is already on Zoom); 2) Zoom will succeed in defending its current business (the competition is tough...); 3) and/or Zoom will develop a new service twice as great as the first one. Very optimistic.

The other scenario is that the stock will go back down to this $40bn value, which is a 70% drop in the stock.

Have a great week,
Charles.

Disclaimer

This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.

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