Zoom ($ZM): Growth Acceleration, A Catalyst

Hello and welcome back to Pitch The PM, where we debate high-conviction investment ideas with top PMs using our 10 Step Variant View Investment Checklist. 

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2-2.5x Return Potential. Post the COVID stock bubble, a laser-focused management team at Zoom worked to transform from a single-product company to an Enterprise platform. Revenue growth acceleration from low single-digits to high single-digits could be the catalyst for positive earnings revisions and potentially multiple re-rating.

In the second episode of Pitch the PM, ex-Citadel Analyst & Millennium Senior Portfolio Manager Doug Garber is swayed by Sean Emory’s ZM pitch. Sean has high conviction in his ZM thesis with a mid-teens weight in his portfolios. After more research, Doug also took a position.

10-Step Variant View Investment Checklist

[00:00] Intro

[02:29] What ACTION do I want the Portfolio Manager to take? 

- Buy

[12:06] Do I UNDERSTAND this business and industry?

- Yes, Sean uses it for his business.

[21:51]​ Is the stock available at a REASONABLE price today?

- Yes, at 10x EV/EBITDA and at the low end of the Enterprise Software peers.

[32:48] Why is this stock MISPRICED?

Low growth at 3% as the Online Segment churn at 2-3%/month has reduced the overall company’s growth rate from the Enterprise Segment.

[35:57] What is my VARIANT VIEW vs the street?

- Growth accelerating to high single-digits from low single-digits.

- Adoption of Zoom phone and Zoom Call Center and stability from the Online Segment.

[38:34] What is my EVIDENCE?

- AlphaSense expert calls demonstrate the uplift from Zoom Phone can be 3x for an Enterprise client.

- And AlphaSense expert calls also discuss the strong, founder-led culture that is laser-focused on winning in UCaaS.

[51:58] What are the CATALYSTS for the street to realize my view? 

- Quarterly results with accelerating Enterprise revenue growth and stable Online revenue.

[55:35] What is the company WORTH if my bet is right?

- $100 - $210 based on $5-$7 in FCF/share at 20-30x P/FCF.

[57:38] What is the OTHER SIDE of the bet?

- Competition makes it hard for Zoom to accelerate Enterprise growth and/or the Online Segment churn increases.

[1:02:54] Is management ALIGNED with ownership?

- Yes, this is a founder-led company with 8% insider ownership and a laser focus on being the best in UCaaS.

[1:04:51] Kill Criteria 

[1:08:16] Short Interests 

[1:09:27] Variant View Checklist

[1:22:25] Outro

Thank you for tuning in. We would be grateful for your comment or like!

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Avory & Company - Investing Where The World is Headed. Avory & Co runs a high-conviction growth equity strategy focusing on quality, well-led companies offering long-term sustainable growth. Sean Emory earned his degree at Yale. He was a co-founder of Blink App and founder and current CIO of Avory & Co.

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⚠️ Disclaimer: This is for educational purposes. It is not investment advice. Contact your financial advisor for suitable investments for you.