S&p 500 Earnings Update & Economic Data Review - Sunday, March 7

In the 4th quarter, Zoom customers with over 10 employees grew 470% and customers that generate more than $100,000 in trailing twelve month revenues grew 156%. It’s the 11th consecutive quarter that customers with over 10 employees grew more than 130%.

Management has done an exceptional job of overdelivering on growth and margins, and I think margins will continue to improve. But strong quarters like these make for tough comparisons in the future. Larger customers continue to grow, but the percentage of revenues from smaller companies still grew to about 37% (almost double the % of the prior years). I wonder how much of those revenues from smaller customers will be lost when things return to normal? In other words, don’t expect this growth rate to be sustainable.

Zoom has been publicly traded for less than two years now. At $330, the stock has matched the size of the 2019 decline on a percentage basis.

Zoom still trades about 40x sales, so the valuation has never made sense. When you are growing 300%+ and still beating expectations, valuation becomes a secondary thought. But the pace of growth will slow. Management guided for +42% revenue growth this upcoming year, which would be half the growth rate of last year (+88%).

The stock found support at $330 earlier this year. We got a nice bounce of about 33% off that support level, but it’s now retesting that area again. We also have an open price gap at $325, which the high volume gap up after earnings in September. I’m watching these levels closely, but would prefer to add in the mid $200’s. Of course it may never get that low. We never know.

Chart of the week

I spend most of the time on earnings trends for obvious reasons. But the other component of total returns are dividends. The above chart shows the annual dividend distributions for the iShares S&P 500 index ETF (IVV) since inception. Dividends grew 345% (a compounded annual growth rate of 7.74%) over the worst 20-year period since the great depression. It goes to show there is no substitute for a diversified portfolio of high quality companies.


 The market is now undergoing a perfectly normal correction in response to the change in the risk-free rate. I think the market was expecting some “yield curve control” from the Fed (an increase in buying of long term bonds to keep rates low) but Powell basically shot that down (for now) on Thursday. By Friday, all was forgiven.

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