What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're continuing our mini-series on the pandemic tech talks, many of which saw eye watering growth in 2020 from the historic bull run in tesla to the Countless pandemic plays that doubled, tripled or even quadrupled in value. It seemed like any tech or innovation. Related stock was skyrocketing, 2020 was a year when it was easy to make money in the market. All an investor had to do was be smart about what industries would benefit from the pandemic and find high growth stocks with a competitive advantage in those industries.

But as we all know, 2021 was when everything came back down to earth kathy, wood's arc innovation, etf, which encapsulated many of those same high-growth tech stocks that did so well in 2020, just about lost half of its value in 2021. The main reason was the relative underperformance of the high-flying money-losing unicorn stocks in the context of a rising interest rate environment names like teledog unity, software and twilio, they're, all impressive companies without this world growth, but with that growth, investors get ballooning net losses with no promise Of profitability, until many years into the future, with zoom video being one of the most iconic work from home stocks of the pandemic, it's not surprising that zoom was also clobbered by 2021's red to sear for tech. However, unlike the majority of its tech, ipo peers, zoom has actually always been highly profitable and uniquely well managed in this video. We'll look at the massive benefit that zoom got from the pandemic, what their business model is and what their prospects are.

Now the worst of the pandemic seems to be behind us, keep in mind that we are not financial advisors, and this video is, for entertainment purposes, only make sure to do your own research and consult with a professional before making any investment decision. But before we get into the video make sure to subscribe to our brand new free spotify podcast in this podcast, we put wall street millennial content in an easy to digest. Audio only format that you can take with you, wherever you go just search for the wall, street millennial, podcast in the spotify app and subscribe today. Everyone knows zoom these days, the video conferencing software that lets you work in your pajamas from home and save time on the commute to the office, but before 2020 many people had never heard of it.

The reality is that zoom was in fact much smaller before the pandemic, but even then it was growing very quickly after its first product launch in 2013, it quickly acquired customers and had over a million users within a year. It was especially popular among customers like universities and corporations, who used zoom for meetings with many people at a time at various points between 2013 and 2019 zoom raised money in the private markets, with its valuation, eventually growing to billions of dollars. It ipo'd in 2019. At a nearly 10 billion evaluation, just six years after launching its first product and only eight years since being founded.

So what was the secret behind zoom success? It wasn't the first video conferencing product before zoom. There was skype. The original video chat product and ichat, which was apple's instant messaging and video chat product that is now long gone, but those services were primarily targeted towards one-on-one video for non-business uses. They were accordingly, simplistic and lacking in practical features and reliability partially, because internet infrastructure was still not as mature as it is today.

Video chat suffered chronic bugs connection issues and poor video fidelity in those early days. Video chat was not a viable solution for professional use cases, especially when more than just two person sessions were needed. Zoom came into the market specifically targeting the need for highly reliable, practical and, most importantly, simple, to use video conferencing in their prospectus to investors ahead of their 2019 ipo. They use the word frictionless 17 times when describing the goal of their video conferencing software.

They wanted to provide a tool that just works that users could operate without having to hassle with complicated networking. They came out with zoom meetings, which is their first and most ubiquitous product. Zoom meetings is free to use and allows multiple participants to hold video meetings for a maximum amount of time. It immediately impressed companies, universities and other kinds of large organizations for its simplicity and ease of use.

Although most people used zoom meetings for free, it allowed zoom to become a household name and a clear market leader when covet hit and everyone started working and going to school from home zoom got a huge boost in users. Almost overnight, they went from 10 million daily meeting participants to 300 million because of their focus on enterprise customers. They were the leader when schools and companies started looking for video conferencing solutions, zoom also differentiated itself, with its ability to scale up their operations incredibly quickly. At the beginning of the pandemic, they were able to increase the capacity of their own data centers, as well as their use of public internet infrastructure.

Remarkably well, in the early days as 2020, grinded on and work from home became more normalized. Zoom's stock soared. They seemed like the clear winner in their industry, and video meetings were clearly here to stay. Zoom's talk went from sixty dollars a share before the pandemic to 560 dollars a share at its peak in late 2020.

But after a year-long sugar, high zoom stock then came under more intense scrutiny from wall street critics. They said that zoom stock had gotten ahead of itself. That investor had extrapolated coveted era growth too far and that it was just swept up in the stimulus check. Theory of retail investors buying everything, innovation and their growth was showing signs of slowing, after almost doubling their revenue in a single quarter from may through july of 2020, their growth rate severely decelerated to about 15 percent quarter over quarter just half a year later.

In all of 2021, the revenue only grew by about one third, the shocking slowing of their growth rate can really be seen in a chart of their historical quarterly revenue, which you can view for free on our website. At wallstreetmillennial.com from bearish investors perspective, this decelerating growth was a fatal flaw in zoom stock. There is a point in their argument. It was foolish for anyone to think that zoom would forever enjoy the levels of growth of early 2020.

in the entire year of 2020. Zoom made about 2.7 billion dollars of revenue at the stock's peak in october of 2020. Zoom's market cap was approaching 200 billion dollars that put it at about 75 times sales, an insane valuation for any type of stock. When investors finally realized that zoom's growth would no longer be able to support this type of valuation, the stock dropped like a rock for more than a year.

The stock did nothing but go down even through march of 2022, when this video was recorded, it now trades at about 115 dollars a share for a 35 billion dollar valuation. That's still almost 10 times 2021 revenue. But at this point the stock is down so much that the bearish narrative is now much less applicable after an 80 decline in stock price. The reality is that zoom, as a company is actually an extremely strong business, there's still the overwhelming leader in the global video conferencing industry, meeting the likes of google me and microsoft teams, and there are some key aspects of their business strategy that give them durability.

First is the fact that they use the pandemic as an opportunity to become an embedded part of the corporate infrastructure at many companies, their zoom rooms, product, which specifically targets large organizations like companies and universities, has been deployed in office buildings and classrooms all around the world. Even if a competitor like microsoft teams might be an equally good or even better alternative, the fact that zoom's customers have already molded their processes and habits around zoom makes it hard to switch. Another major advantage to zoom's favor is profitability. The vast majority of the other tech unicorns in zoom's peer group are massively unprofitable money shredders.

They use their ipo money to buy growth via sales and marketing spending, for example, twilio lost about a quarter billion dollars last quarter alone. Zoom, by contrast, has very favorable net profit margins of about one third, that allowed them to make 340 million dollars of net income last quarter alone, and their income is now growing at a faster rate than their revenue. This diamond in the rough profitability of zoom is even more impressive, considering the nature of their business. Their business has the potential to carry relatively high operating costs due to the high bandwidth of video conferencing.

A prime example of that is roblox. Another covid tech, ipo roblox's business model involves serving huge amounts of video to consumers, contributing to prohibitively high total costs and expenses. They have to pay internet service providers and maintain their own data centers just to keep their pre-adolescent consumers engaged for hours every day. Because of that, their hands are largely tied when it comes to trying to improve their profitability.

Zoom avoided this issue by targeting enterprise customers, who provide more revenue per user and use less bandwidth per user. That translates to much better margins and, ultimately, an incredibly profitable operation. When it comes to covet, stocks, 2020 and 2021 have been two opposite extremes in terms of stock performance and zoom is perhaps the most iconic of all the pandemic era. Stocks, with its stock being cut to one fifth of its former value.

Its downfall is among the most dramatic of any, but the fundamentals of zoom's business paints a much different story than the last 18 months of its stock price. Their undeniably strong profitability and firm market dominance positioned them to succeed far into the future, while stock prices go up and down. Zoom is one business who will come out of the pandemic as a clear winner, alright guys that wraps it up for this video. If you enjoyed this content make sure to subscribe, so you don't miss future uploads.

Also, don't forget to check out our new wall street millennial podcast on spotify in the meantime. Thank you so much for watching and we'll see in the next video wall street millennial signing out.