The dollar slumped to a fresh two-year low and the vaunted “stay at home” trade looked poised to extend Tuesday, after results from Zoom blew past estimates.
A quick scan of headlines reveals quite a bit about the zeitgeist or, more to the point, shows it hasn’t changed.
Apple is “preparing a bullish 5G iPhone rollout” alongside new watches and a fresh iPad, we’re told. Its shares, along with those of Tesla, have successfully employed splits to “lure” a “broader” investor base. Zoom logged a cartoonish 355% surge in quarterly revenue, making a mockery of analyst estimates and cementing its place as perhaps one of the biggest pandemic winners of them all. In Europe, growth shares will get more weight in the Stoxx 600 at the expense of value. And so on.
It never ends. Of course, that’s what they say right before it all falls apart. But calling time on this particular “crash up” is a perilous game to play, which speaks to some of the dynamics discussed in “Stocks Up, Vol Up And ‘The Mighty Call Trading Legion’”.
Commenting Tuesday on Zoom’s quarter, D.A. Davidson’s Rishi Jaluria ran fresh out of adjectives. “I’m at a loss for words”, Bloomberg quotes Jaluria as saying. “After Q1, my colleagues and I said this is one of the best quarters in software history. How do you follow this up? I think they’ve done it”.
It’s amazing what happens when you confine everyone to their homes and reinforce existing societal trends by enshrining them into executive orders, thereby making certain business models synonymous with staying alive (i.e., public health), even as they were already becoming synonymous with being alive (to the extent digital existence increasingly proxies for the “real” thing).
“Populations largely confined to their homes have to socialize, work, shop, and be educated online”, JPMorgan’s Marko Kolanovic said Monday. “The use of devices, cloud, and internet services was bound to skyrocket while the rest of the economy took a nose dive”.
Zoom went so far as to suggest that its full-year sales are poised to quadruple. The company guided for full-year EPS that would be double the Street’s estimates.
Unsurprisingly, CEOs and founders of the beneficiary companies are keen to suggest this is our future.
“Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere”, Zoom’s Eric Yuan remarked.
JPMorgan’s Kolanovic observes that “this has created enormous inequality not just in the performance of economic segments, but in society more broadly”. That echoes the general theme discussed in “Gods” and “Redundancies“, a pair of weekend pieces which you’re encouraged to peruse.
“On one side, tech fortunes reached all-time highs, while lower income, blue collar workers and those that cannot work remotely suffered the most”, Kolanovic went on to say.
Speaking of stratospheric, Elon Musk (who, by his own account, plans to die on Mars) surpassed Mark Zuckerberg on the world’s richest list. Maybe Facebook needs to orchestrate a split. Keeping up with the Joneses and such.
Pretty easy to understand this scenario and buying in resembles ‘playing Chicken with a Train ‘. At the same time where as that can be fatal so can the alternative if you consider shorting this mess at some point…. A few hedges and maybe playing around the fringes is the safest place.
The “stay at home” shift in consumption is real and dramatic, but also artificial and temporary.
Artificial, in that consumers did not choose to lock down at home, forgo dining out and travel, and stare at (newly purchased) screens in lieu of face-to-face school, work, family, friends. They were forced to do so by an external force, the pandemic.
Temporary, in that the pandemic will end, whether via vaccination or acquired population immunity, likely by early/mid 2021. The 1918 pandemic lasted a year (Mar 1918-Jan 1919 in the US) with no pharmaceutical intervention.
Valuations of stay at home names has long surpassed levels that require current spending patterns to be sustained indefinitely. They now require that future spending shifts at an even more dramatically. How likely is it that Americans continue “sheltering at home” for many years? That Americans shelter at home twice as vigorously as now?
There are other drivers of these valuations, such as low risk free rates and TINA, but those are not unique to stay at home names.
We’re told that, unlike the 1999/2000 tech bubble, today’s tech rocketships are real companies with high profits, fortress balance sheets, deep moats and indispensable products. But so were most of the big NASDAQ names in 2000 – Cisco, Intel, Sun, etc – that inflicted such pain shortly thereafter. And some are not – Tesla comes to mind.
Does the parlourous state of the economy matter to the stay at home rally? Yes, in the sense that the weaker the economy, the better these names look on a relative basis. Their customers tend to be the higher-income WFH consumers who can buy new MacBooks for the whole family and refurnish their house in lieu of a month in Tuscany.