Tech companies prosper during global pandemic
The past month has been one of the most turbulent in recent times. Coronavirus has completely dominated headlines after it has drastically spread across the globe, changing the world as we know it. Schools, shops, restaurants and bars have closed, and millions of people have been forced to work from home.
Countless companies around the world have taken massive hits and had to adjust to these unprecedented times, however it seems like a lot of tech companies are going to prosper during this global pandemic.
With more and more people forced to isolate themselves at home, blogs, social media sites and video platforms have already experienced a massive increase in users – YouTube have even had to set the video quality to standard definition, a measly 480p, in order to cope with the surge of visitors to the site, as opposed to the standard high-definition default (1080p).
It isn’t just entertainment services that are experiencing this increase in demand, one platform in particular that has really flourished amidst the coronavirus outbreak is Zoom. Zoom is one of the market leading video conferencing platforms, typically used by businesses, and has seen a massive spike since the severity of the coronavirus outbreak increased.
With more and more businesses allowing their workers to work remotely, the need for online video conferencing has increased tenfold. From the period between February 24th and March 13th, Zoom saw an 84% increase in unique users according to data from Okta.
Since then, Zoom has continued to increase. Below shows the search interest over the last month (as of March 26) according to Google trends.
Google Trends, March 2020
This surge in demand for Zoom has seen the company’s stocks exponentially grow. In this period of uncertainty where the majority of the world’s leading markets have plummeted, it is interesting to see how much Zoom has benefited from the crisis.
Even before the coronavirus outbreak, Zoom had experienced substantial growth. As the company's 10-K filing shows, revenues in the fiscal year that finished on January 31, 2020, were more than USD$622 million. This was an increase from USD$330 million a year earlier and USD$151 million in fiscal 2018, and with the current situation in the world this is only going to increase.
Whilst the current climate is proving to be prosperous for Zoom and its competitors, investors must be cautious of the bubble. Investing in Zoom is extremely expensive after the surge, with a market cap at midday on Monday of USD$45 billion.
Yahoo Finance, March 2020
It is clear to see the boost that Zoom has received thanks to the coronavirus outbreak, however this situation will not last forever. It is impossible to tell whether or not Zoom is just a flash in the pan, filling a gap in the market that is truly needed before it fades into obscurity, or if it is actually a new, impressive force in the tech industry that is here to stay.
My opinion is that of the former; whilst I think Zoom will still be around in the coming years, I think the current situation has seen an unprecedented spike in its value that will be looked back on as something of an anomaly. We will just have to wait and see, but I would be very surprised if, once the situation dies down, that Zoom is even nearly as valuable as it is in the current climate.
We’ve seen many bubbles in the tech industry in recent times. New, exciting start-ups see a massive surge in popularity and value before completely falling off as time moves forward. Will the same happen to Zoom? Only time will tell, but I would personally be looking elsewhere for my next investment.
