The advent of the Covid-19 pandemic has shifted the world into virtual platforms. With physical workspaces restricted, most offline institutions have embraced virtual means of communication, primarily among which is the popular video call application, Zoom. With a vaccine yet to be released, there is a high possibility that the usage of video applications will continue to rise. As illustrated by the 660% rise of Zoom Stock, virtual communication is here to stay. But the bigger question is if Zoom stocks will continue to rise with the presence of bigger competitors such as Alphabet Inc.’s Google Meet.
Zoom: Rising through the pandemic
Created in 2012, Zoom stocks truly began to see success during the rise of Covid-19 where the physical restrictions imposed worldwide proved to be advantageous for the video platform. With over 2 million downloads in a single day in March 2020, Zoom currently is one of the leading applications for video conferences. With Zoom stock’s revenue jumping by 270% year-over-over in the first half fiscal of 2021, its triple-digit revenue growth outpaced its operating expenses. This is adjusting its Earnings Per Share (EPS) to nearly tenfold the value of what it was before the Covid-19 Pandemic.
Though the growth rates are very appealing, there seems to be a significant number of problems that might bring down its present growth rate. Primarily, Zoom has major competition from the likes of Cisco’s Webex, Alphabet Inc.’s Google Meet, and Facebook’s Messenger Rooms. These larger and better-funded companies have the opportunity to provide similar, if not better services at far cheaper prices than Zoom.
Secondly, Zoom has struggled with security and privacy concerns since the last year. With the rise in popularity, Zoom’s privacy infrastructure, and further, its stock price might be affected if further limitations present themselves in the near future. Lastly, it is unclear if Zoom’s popularity and success will continue when the pandemic will be controlled; with a strong possibility that shares might drop in the future ahead.
Alphabet: Slow growth but secure future
With Alphabet’s overall revenues dipping due to slowed Google ad revenues because of the pandemic, at first glance; Alphabet’s slow growth rates in the first half-year seem alarming but analysts expect Alphabet’s revenue and earnings to rise by 21% and 27% respectively, with the end of the pandemic and the rise in ad revenues generated by Google.
However, Google faces significant competition from Facebook and Amazon in the advertising market with both possessing their own large database which threatens Google’s profits. It also does not help that several antitrust probes across the globe against Google might limit its accessibility and user reach.
Lastly, there is a possibility that Google might have to ramp its cloud spending in order to increase its current 6% control in the cloud infrastructure market in order to close up the gap between the cloud service giants, Microsoft’s Azure, and Amazon Web Services. Despite this, Alphabet’s stocks trade at a reasonable 27 times forward earnings, which despite being a fair value, still fall short of Zoom stock’s tremendous returns.
Verdict: The choice between quick returns or slow but guaranteed returns
Though Alphabet remains to be a solid long-term investment, Zoom’s incredible returns suggest that as long as the pandemic continues; Zoom stocks will rise at a far higher rate than Alphabet stocks whose growths, though assured, falls short because of their limited ad growth in the pandemic.