A first look at Zoom Video Communications; Three of my best travel hacks

1) It's dangerous buying busted bubble stocks... so that's why you need to be cautious before jumping in.

Some of these busted bubble stocks include:

• Exercise-bicycle maker Peloton Interactive (PTON), down 98% from its pandemic-era peak...
• Electric-truck company Rivian (RIVN), down 95% from its pandemic-era peak...
• And space-tourism business Virgin Galactic (SPCE), down 98% from its pandemic-era peak (though our recommendations at my former firm, Empire Financial Research, to get in at the end of 2020 just above $10 per share and out of the remaining position at $50 per share in 2021 made good money for subscribers who followed our advice).

The investors who bought these stocks when they were down 90% – figuring that they couldn't possibly go down anymore – are now sitting on losses of 50% to 80%.

So with that warning, today I'll share my quick analysis of Zoom Video Communications (ZM) and what I think of the stock right now after its big rise and fall...

The company makes the ubiquitous teleconferencing software we're all using – just about daily in my case.

At yesterday's close of $61.62, ZM shares are down 89% from their peak during the pandemic of $568.34 on October 19, 2020. In the chart below, you can see the stock's huge rise and fall since the company went public:

Back in October 2020, the company had previously reported revenue of $663.5 million in its most recent quarter, up 355% from $145.8 in the same quarter in 2019. Its trailing-12-month revenue was $1.35 billion and its run-rate revenue was $2.65 billion.

Given that pandemic has passed and most people have returned to work – not to mention the collapse of the stock price – it would be reasonable to assume that Zoom's revenues have declined sharply... but they haven't.

As you can see from the next chart, revenues have continued to grow, reaching an all-time high of more than $4.5 billion last year. Meanwhile, operating income – after falling sharply in 2022 – has rebounded nicely:

So why is the stock down 89% from the peak?

In one word: valuation.

On the day it peaked, Zoom had a market cap of well over $150 billion. It hit a nosebleed valuation of 63.7 times run-rate revenue.

It's a good lesson for the growth investors who think that all they have to do is find market-leading companies that are going to continue to grow and buy their stocks, irrespective of valuation.

Not so...

While it's true that the quality and future growth prospects are more important than current valuations, the price you pay still matters!

With this lesson in mind, let's take a look at Zoom today. It has a heck of a brand name...

Nobody says, "Let's set up a video call" – they say, "Let's set up a Zoom." And having used the service extensively for years, I'm convinced it's better than its competitors – to the point that I'm annoyed when someone sets up a meeting using Microsoft Teams or RingCentral.

It reminds me of what NYU marketing professor Scott Galloway says when someone pulls out a Discover credit card – along the lines of telling everyone that life just hasn't worked out so well for them...

Most important, however, let's look at the numbers for Zoom.

As you can see in the chart above, revenue grew exponentially thanks to the pandemic, but is still growing slightly. And operating income has rebounded from 2022, but is still well below its 2021 highs.

Gross margins are high and steady around 75%, while operating margin has been a healthy 10% to 15% for the past three quarters:

Importantly, Zoom is a free cash flow ("FCF") generating machine. Here's the chart of operating cash flow and capital expenditures ("capex"):

In the past four quarters, Zoom has generated $1.47 billion in FCF.

Since it doesn't pay a dividend and only bought back a piddly $5.5 million in stock last year (after buying back about $1 billion in 2022), the cash is piling up on Zoom's balance sheet. It's currently equal to roughly $7 billion, which is about 37% of the company's less than $19 billion market cap.

Netting out the cash and adding back an insignificant $73 million in lease obligations yields an enterprise value of $11.4 billion. That's a modest 2.5 times revenue and a mere 7.8 times FCF – pretty interesting, in my opinion, for a market-leading, high-margin, FCF-gushing tech company.

So is the stock interesting enough to buy?

Overall, I'm not fully convinced yet... but I'm keeping Zoom on my watch list for a deeper look.

If I decide that the stock looks compelling enough to buy, it could be a recommendation in our monthly flagship newsletter where my team and I share our best ideas: Stansberry's Investment Advisory.

Right now, you can become a subscriber for just $49 for the first year – and it's risk-free to give it a try. At any point in the first 30 days, if you're not satisfied for any reason, you can cancel and get a full refund.

Learn how to get started with an Investment Advisory subscription – and gain instant access to all of our existing open recommendations right now – by clicking here.

2) I used three of my best travel hacks recently...

The first was when I was assigned a dreaded middle seat on the second leg of my flight home from Cuba – from Miami International Airport to LaGuardia Airport.

Since I didn't have to worry about space in the overhead bins because I only had my rolling backpack, I waited until I saw the last person scanning their boarding pass and then went up to the desk and asked, "Is there any chance you have any window or aisle seats?"

Unless a flight is 100% full, airlines usually keep a few seats free to sit couples or families together. So I not only got an aisle seat, but the middle seat next to me was open.

It never hurts to ask!

And I applied another travel hack when I booked flights to the Azores and New Zealand for my wife Susan and me in July and November, respectively...

After the 20th annual Value Investing Seminar in Trani, Italy on July 4 and July 5 (see my March 7 e-mail for more details), Susan and I are flying the next day from the nearby Bari Airport to the Ponta Delgada Airport in the Azores (1,000 miles off the coast of Portugal), arriving just in time for this Backroads trip starting on July 7.

I first checked Google Flights, as I always do, but didn't find anything I liked: a middle-of-the-night connection through Amsterdam or two connections through Rome or Barcelona and then Lisbon.

So I checked other travel websites/apps – including Expedia, Orbitz, Hopper, Kayak, Priceline, and Trip.com.

On the latter, I finally hit paydirt (sort of)...

While I wasn't able to find a decent one-connection option, Trip.com had an option through Barcelona and Lisbon for only $295 per person, well below the $384 to $480 prices shown elsewhere.

It's usually not worth the time to look beyond Google Flights if you're looking at round-trip, nonstop flights, especially domestically. But for one-way, connecting, and/or international flights, it pays to take a few minutes to shop around.

Regarding our New Zealand trip, I've visited 87 countries and have some of my best memories of the trip we took there in 1995. (It's an easy trip to remember because Susan was a few months pregnant with our first daughter – who turns 28 today.)

If you like the great outdoors and adrenaline-inducing adventures, New Zealand is the country for you.

In two weeks, we explored caves, rappelled down a waterfall, rafted on an underground river in the dark, bathed in hot springs, took a helicopter to the top of a glacier, went jet boating, and I went parachuting. About the only thing I missed was bungee jumping (which to this day, I've still never done).

Here are a few pictures from that trip:

Susan and all three of our girls have been to New Zealand in the past few years, but I wasn't able to go... so I've always wanted to go back.

That's why the e-mail I received last week from Thrifty Traveler (one of the two airfare deal services I use... the other is Going.com – this is travel hack No. 3) caught my eye...

It highlighted a special that Qantas Airways is offering on its nonstop 17-hour flights between JFK International Airport and Auckland Airport: 253,000 miles plus $426 for a flat-bed business-class seat.

I can always use the points I earn on my Chase Sapphire Reserve credit card to book flights and hotels at a rate of $150 per 10,000 points (though in this case I was transferring points from my American Express Platinum credit card), so 253,000 miles is worth $3,795.

Adding the $426 fee brought the cost to $4,221. I checked and it would normally cost $7,992 to buy this ticket, so this was a nearly half-price deal.

I immediately e-mailed Susan to see if she was interested, with the pitch that we could justify the cost as a joint birthday/anniversary gift to ourselves (our birthdays and anniversary fall between October 3 and November 1).

To my surprise, she said yes – because New Zealand is her favorite country among the 54 countries she has visited. So before she could change her mind (and before Qantas pulled the offer), I transferred the miles and bought the ticket.

I didn't have enough miles to buy a second business-class seat, but that's okay – the flight is so long that we can each get a full eight-and-a-half hours of sleep up front while the other sits in coach.

To book an economy-class ticket, I again used Google Flights, which showed a price of $1,592 round trip on the same flights – not bad. But when I clicked the link that took me to Qantas' website to book it, it was showing $1,991!

So I again checked other sites. And, sure enough, I found the $1,592 price I was looking for on Expedia – so I booked it there.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.