JUNE 2, 2020
Link to the Real. It Pays.
all good now–who worries about encryption? Not shareholders of Zoom. Zoombombing’s over now–right? Bombers made indelibly clear that ZM’s claims concerning “end-to-end encryption” were flag-waving nonsense. The flurry of F-bombs, insults, and conference hijackings, hardly dented ZM’s share price. Up over 24% yesterday alone. Rocket Star.
Paperwork rules the economy–“Sign here.” Right. DocuSign’s digitizing yet another bothersome, cripplingly-slow process. Just sign on yo phone and the loan-or deed or whatever’s–all set. How much would you pay for that service? Rocket Star.
Streamlining, digitizing, call it what you will, Paypal’s been doing all that for years. They were there when eBay was born. They have the customer base to prove it. Now they’re peeer-t0-peer and more. Moving and managing money are in part cultural, thus demographic. They’ve got that too. Millennials think Venmo and SoFi not Wells. Since it’s COVID low on March 20th, PYPL’s risen 78.2% into yesterday’s close. Consider PYPL, another “Rocket Star. PYPL, ZM, DOCU.”
market moves are healthy. Narrow ones are suspect. Why? Amazon, Apple, Alphabet, and small knots of tech, healthcare, and staples, can carry the market for only so long. Institutional money is restless, skittish, and profit-driven, and it’s institutional money that sets share prices.
When we hear the term “smart money,” we’re hearing about institutional money. What does “smart money” do? It attempts to anticipate asset price moves, and then be there first. News moves money and money moves money. Whose moves are they anticipating? The other smart money. When such occur in the equity market it’s known as a “sector rotation.” And the point? Nothing goes up forever, and rockets come down hard, and fugly. That applies double for the massive gainers, the Rocket Stars.
-Zoom Video Communications Inc.-
Video is a perfect fit for the times, the go-to provider for conferencing. Yet ZM is tricky nightmarish. Since being crowned as a COVID darling the company’s been hit with that foul phenomenon we now know as “zoombombing.” Insufficient security has allowed its’ video conferencing platform to be hacked, and users assaulted by offensive content and haunting security lapses. Last month CEO Eric Yuan announced that the company would forego efforts to add additional features and focus on increasing security. Of course. What choice did they really have?
On Monday the 1st, the firm Labaton Sucharow announced an “investigation” of Zoom. Why? The company may have released “materially misleading business information,” concerning it’s “user” base, reportedly now 300 million. The 300M “user” figure was then revised to “300 million conference participants.” Hum. The report concerning an investigation posted at 9:53 EST. As of that time shares of ZM were rolling, up 12.86%.
Why talk Zoom? A service’s time has clearly come. When share prices rage higher in the face of possible lies, or “misleading” it signals a devotional investor base. And this is not the first. Since the foul business of zoombombing was disclosed weeks ago, ZM shares have risen by more than 64%. Class action lawsuits have been forming during all that time. Horrid headlines, offensive hacking events, class action suits, and now the release of potentially “misleading business information,” and yet ZM climbs relentlessly.
Is ZM a good buy? Bottom line. Zoom reports after close today. ZM’s priced for perfection and perfection’s ultra-difficult to deliver. If we owned it we would have sold 50% our position late yesterday. But Zoom does have a future, a cloudy one.
2016 and this year DocuSign has nearly quadrupled its’ revenue; 250M. to 975M. Nice. That progress has been steady. Again, nice. The company is also non-GAAP profitable, by $0.12 in their Q4 2020 posted in March, and by $0.11 in their Q3 2020 quarter reported in early December last year. Both were big beats, 140% and 254% respectively. Secular growth tech that’s fast growing and profitable? Really? Both those quarterly beats were legit, yet the law of small numbers.
Meanwhile, this San Francisco-based operation is cash flow negative. That means they’re living on debt. How is the business described? They “…automate manual, paper-based processes with the open, independent, standards-based digital transaction management (DTM) platform.” How’s that working now? Much better. People catch COVID. Digits don’t.
everyone else, DocuSign Inc. hopes to serve many customer bases. Why not? San Francisco’s hyper-expensive and this company spent fifteen grueling years on its’ questionable journey to public. Bank in April ’18 shares launched on the Nasdaq and rose 37% on day one. Shares have moved in a straight line up since they reported in March, again, 95%YTD as of this morning.
Is DocuSign a buy? Bottom line. As just stated, the more we learn, the more we like this company and its’ business. DocuSign seems more of a digitizing play than a tech revolution. We love and trust more companies with comprehensible products or services. But DOCU has run too hard too fast to be trusted as a stock here. Even a 15% correction wouldn’t lure us in now. They report after close on Thursday. We’ll be watching, and we’ll let you know first if we change our minds.
-Paypal Holdings Inc.-
PYPL chart is all the more impressive when considering “overhead supply.” Chart Figure 1. The price-action recently completed a “V-shaped” recovery from its’ March COVID low. It pushed directly through the resistance of that former high, and gapped up on the earnings announcement. It tested support, intraday, at the steeply-rising 20-day SMA, and linked up days after that. The strength. But is Paypal a good buy?
We feel Paypal’s buyable on a pull-back. Why? Digital payments have now turned the corner to become the majority, and preferred, method of payment, and Paypal is incredibly well positioned to benefit over the longer term. PYPL is riding the secular trend of digital, the demographic adoption of the Millennial, and the touchless functionality of COVID. We like it below $144.40. On 5-27-20 it hit $140.02 intraday.
“Overhead supply” represents the selling pressure created at a recovery level. Think V-shape. Buyers who rode shares sharply down tend to want out when shares return to level. Pressure one. Simultaneously, buyers of that dip tend toward profit-taking once the price-action reaches a clear and significant resistance level–the completion of a V-shaped recovery. Pressure two. Ding–double the fun and sellers. Carter Worth explained the concept so nicely. Love that guy.
On Monday Wedbush raised its’ price target for PYPL from $160 to $176 citing big transaction volume shift away from physical point-of-sale(POS) to digital and e-commerce. They believe this shift will continue post-COVID. Sounds sound.
now suggest that 97% of S&P 500 companies are trading above their 50-day simple moving averages. Meanwhile earnings estimates are being revised lower for all but the very few. Unemployment is off the charts, possibly as high as 25% according to an administration official. No way exists to determine the number of jobs that will vanish, even when a full return is authorized nationwide. When these facts reach clarity, share prices will reset, likely to much lower levels for most. The highest will come down the hardest, and the quickest. Thus, valuation matters here and below are the numbers for ZM, PYPL, & DOCU.
the true economic cost of this pandemic becomes clear, the market will flap like a diving board. Real earnings will again matter, along with valuations. Secular growth has roared because it’s sensational, and it’s been the only real growth in town. It’s exciting, and it’s also gained the equivalent growth of years in mere months. That’s unlikely to continue.
As of Tuesday morning Zoom’s up over 28% in five days, on news of forming class action lawsuits concerning the release of “materially misleading business information.” ZM’s a Buy, if one likes swarming wasps and can stomach a P/E of 2350, after a more than tripling of the share price YTD. Let Zoom report following today’s close. Guidance may be a problem, and if it is one will need a parachute. But parachutes don’t work in space.
Giddy tech promises are also sensational and intoxicating. Think dot-bombs. Sobriety is, well, sobering, and it always comes, eventually. No share price deserves to double in eight weeks. Fundamentally sound investing doesn’t work that way. Gaming does. Every stock will sooner, rather than later, be asked that annoying question about sustainable and growing earnings. That’s how true “investing” justifies P/Es. Gravity always returns, and all giggly free-floating space walks end then without warning. As always, good luck and good investing.