DocuSign and Zoom stock just had a day that made this year's past "Zoom booms" look like low rumbles, but there are threats ahead.
The Nasdaq Composite hit another record high Tuesday. The tech-heavy benchmark has gained roughly 3% since Thursday when Jerome Powell said the Fed wouldn’t mind a little bit of inflation. It looks like Ben Bernanke was right about easing and forward guidance in the Fed’s arsenal to fight the next big one.
But Zoom (NASDAQ:ZM) left the rest of the Nasdaq in the breeze with a 40% surge Tuesday. Zoom was the day’s third-biggest gainer in the U.S. stock market. Massive revenue growth shook the stock price so hard it made this year’s previous “Zoom booms” look like a low rumble.
Watch Rishi Jaluria, senior vice president at D.A. Davidson, break down the numbers:
Zoom wowed investors with a Monday earnings report showing revenue more than quadruple 2019. But does Zoom’s earnings justify its price? Let’s say its profit quadrupled too, that’s $400 million. Citigroup (NYSE:C) made $19 billion in net income last year. But today, Zoom’s market cap is larger than Citi’s now. Is Zoom really a more valuable company than Citigroup?
Don’t blame Robinhood investors. Zoom isn’t topping the list of popular stocks there. They like to buy stocks the virus killed, not stocks it helped. Those are the ones the hedge fund crowd have rallied to this year. An entire slew of Wall Street analysts is in on Zoom after the earnings report.
DocuSign (NASDAQ:DOCU) rode Zoom’s coattails to massive Tuesday gains. Its stock rallied 18% Tuesday, the 15th most of any U.S. equity. The electronic signature company makes about a billion dollars in revenue annually.
Zoom’s huge cash haul signaled to investors that the teleworking, pandemic economy is still ripe for growth. As the U.S. awaits colder weather with trepidation about a second virus wave and “Zoom Thanksgiving,” that reckoning could pay off.
But if things change again, we might find a pandemic bubble on our hands. Is the enthusiasm for DocuSign justified based on sound financial analysis or pandemic narrative hype? Its last earnings report showed 12 cents a share. To use Citigroup as a comparison again, its EPS over the same period was $0.50.
Watch CNBC’s Josh Brown make a correct bullish call on DocuSign a month ago:
But many Zoom and DocuSign investors today are probably already sweating over whether they should buy, hold, or run away. Will the pandemic economy last forever? Maybe it’s an acceleration of an inevitable shift?
Or will we find a pandemic bubble bursting in a future where people eventually stop wearing masks and the Fed raises interest rates again?
There may not have been an inevitable shift coming. Video meetings might have been a fad like open office floor plans or Blackberries if not for social distancing. But it’s unclear whether these drastic, uncomfortable changes to our society will be permanent.
While the stock market’s booming under the mushroom cloud of a fiscal-monetary bomb, unlike anything dropped in history, millions remain out of work, and U.S. GDP plunged by over 30% in the second quarter.
A return to some semblance of normalcy will be necessary to recover. And people don’t like the norms of pandemic containment and uncertainty about their financial security. The CDC reported in August that 40% of Americans said the pandemic had caused depression or heavy drinking.
It’s also an election year. Not everyone might be acting the way they usually would. Things could shake up and settle down drastically after the election, perhaps whichever party wins. There looks like plenty of time left to make hay while the sun is shining with you inside quarantining, but there’s no guarantee that this will be forever.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:27 PM