It is generally good when a company becomes dominant enough doing whatever it is doing to become the de facto verb for that action. First people xeroxed documents and then they fedexed them and for most of my lifetime I have googled anything I wanted to know. In the last few years, many people have ubered everywhere, and that company should arguably get bonus points for having a viral rap song named after its verb.
Today, while I still facetime friends & family for the most part, Zoom has emerged during this new and still somewhat foreign social distancing era as the overwhelmingly popular video communications company. Last month much moreso than ever before, we zoomed.
Having a verb or even a song named after your company, however, is no guarantee of success. Just ask Jeeves. I do not know that we will be ubering much of anywhere in 10 years either, but that is a theory to be explained on another day.
Today, I am focused on the Zoom boom. In less than two months from January 27th to March 23rd, Zoom’s share price more than doubled, increasing 127% from $70 to $159 while the S&P 500 dropped 31% from $3,243 to $2,237. Since then, as of today, the S&P is up 13% (for no good reason in particular) and Zoom is down 24% mostly comprised of a 6% drop yesterday and an 11% drop today. These drops came alongside stories in the news of privacy breaches and security hacks, Elon Musk’s banning of Zoom use at SpaceX due to related concerns, and the introduction of a new verb that even the FBI used in a memo warning about the possibility of videoteleconference hijacking. A near but less comical cousin of the playful term photobombing, the people are calling it “zoombombing”.
Today, Zoom’s Founder & CEO, Eric Yuan, addressed these concerns quickly, transparently, and seemingly carefully in a public message to zoom users. In the message, he mentioned that in March there were 20 times as many of them active on Zoom on a given day in comparison with just 3 months prior on their highest activity day in the month of December. From 10 million in December, they grew to 200 million in March (about the same as Snapchat and even more than Twitter), and while they may experience some churn (a briefer word for customer loss) as a result of these privacy and security concerns, that churn will surely be opposed by some magnitude of continued influx in users due to Zoom’s significant share of the video conferencing market to which the world is shifting, which includes products from big tech companies like Microsoft’s Skype, Google Hangouts, and Cisco’ WebEx, as well as a number of others like BlueJeans and GoToMeeting by LogMeIn. It is difficult to know how Zoom will ultimately be affected by this privacy & security issue. There is no way to know whether it will prove to be temporary and low impact or whether it will be such a blow to the trusting relationship between userbase and company that the company will never be the same. Zoom may be doomed, but this may also just be a small hiccup in the very early stages of a much longer boom. We have seen companies in the past take publicity nightmares and apparent trust-losing events and turn them right on their heads to become trust-building events and publicity darlings. In the long run, aside from it’s great start, I do not yet have much confidence in Zoom’s defensibility against their several big-time competitors and the number of others which will surely arise. For this reason, and also because of the general instability of the global economy which has kept me mostly on the investing sidelines besides Bitcoin and other cryptocurrencies as well as a single share of Amazon, I am not going to pull the trigger on buying shares of Zoom tomorrow morning, but I am counterintuitively warming up to the idea as a result of this whole zoombombing fiasco, because every obstacle presents an opportunity to show what one is truly made of. Zoom may lose the trust of its users, no doubt, but it also may respond in a way that earns their trust for the long haul, and I believe that its Founder & CEO took a step in the right direction towards doing that today.
More attractively, his letter addressing the issues revealed that the company has 20x’d its best daily active user count from last year and yet anyone with internet access can see that it is only trading 20% higher than the highest point at which it traded last year. I am practically writing myself into buying some shares but I am trying to remain patient as the gradual nature of this pandemic unfolds except for when I am all but certain in my conviction behind an investment. Generally, I would rather miss the bottom of this market than take the chance of locking up much of my money in it long before it gets there, even if that means missing out on a big chunk of the Zoom boom. Still, I am tempted.