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Charlie Munger loves Zoom’s share price, but should other investors?

It almost goes without saying that Zoom’s [ZM] share price was one of the big winners during the pandemic. But what might surprise is that Berkshire Hathaway’s Charlie Munger is a big fan of Zoom. In fact, Charlie Munger has gone as far as saying he’s ‘in love’ with Zoom.

Sitting down with CNBC’s Becky Quick for the special Buffett & Munger: A Wealth of Wisdom, along with business partner Warren Buffett, the 97-year-old investment legend said: “I have fallen in love with Zoom. I think Zoom is here to stay. it just adds so much convenience.”

We look at why Munger is backing the company, even as things begin to return to normal in 2021, and the outlook for Zoom’s share price.

 

Why might Charlie Munger back Zoom’s share price?

Zoom’s share price gained a mammoth 401% in 2020 as the pandemic caused both work and family get-togethers to shift online. One obvious question is whether this price will stumble as countries emerge from lockdown. However, that’s not a concern shared by Charlie Munger.

“I think a lot of business travel will never come back. Just corporation after corporation deciding one meeting a year, two meetings a year in person, and the rest Zoom. And I think that’s here to stay,” Munger said.

“I think a lot of business travel will never come back. Just corporation after corporation deciding one meeting a year, two meetings a year in person, and the rest Zoom. And I think that’s here to stay” - Charlie Munger

 

Backing Munger’s optimism around Zoom is the company’s blowout first quarter. So far, 2021 has helped to stoke optimism that the company is more than a stay-at-home pandemic play. Driving earnings was a surge in new customers, and the company now has 497,000 customers with more than 10 employees on its books, an 87% jump from the same period last year. In the quarter, 1,999 customers contributed more than $100,000 each in the trailing 12 months revenue, up around 160% year on year.

In the quarter, Zoom posted earnings of $1.32 per share on $956.2m in revenue, up 191% year on year — both figures topping Wall Street estimates. Zoom is now guiding for earnings of between $1.14 to $1.15 per share on $985m to $990m in revenue.

Zoom’s share price has been on a run since gaining more than 34% between 16 May and Friday’s close. The recent strength in Zoom’s share price — and Munger’s backing — could help to calm investors concerned that the stock might hit the doldrums in 2021 following last year’s outsized gains.

$956.2m

Zoom's Q1 revenue - a 191% YoY rise

  

Among the analysts tracking Zoom’s share price on Yahoo Finance, the stock carries a $413.23 price target — hitting this would see a 6.3% upside on Friday’s close of $388.89.

Charlie Munger might be positive on Zoom’s share price, but, during the interview, his long-time business partner Warren Buffett said he still preferred the telephone.

 

Who Munger doesn’t love

In the wide-ranging interview, Munger wasn’t as positive on Robinhood, the online trading platform that will soon go public in a listing pegged at around the $40bn mark. The veteran investor likened the trading firm to a “gambling parlour”, echoing criticism that the app encourages investors to take riskier trading decisions through day trading, rather than let their investments grow over time.

Munger also let rip on the Jack Ma saga in China, saying the ruling Communist party “did the right thing” in reining in the Alibaba and Ant Group founder’s plans to take on the country’s banking system. Strong words from the veteran investor.

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