What to Do with Your Lockdown Stocks Now There’s a Vaccine?
For just a moment, I’m going to play devil’s advocate and run with an assumption - the assumption that highly qualified virologist’s have worked tirelessly to create a vaccine which is effective against the spread of the dreaded Covid-19 for the greater good of mankind.
I’m also going to move away from the mainstream notion that the government has pushed through this vaccine to implant the population with a 5G cancer inducing, data collecting, Bill Gates’ joint ventured, Bitcoin funded, Illuminati inspired power play.
I understand that this ideology is incredibly inflammatory and I’m sure I’ll be banned from Twitter, Facebook, Pinterest, Myspace, and MSN Messenger shortly for speaking such truth. But goddammit, I’ll risk it all if it means I can chuck in my two cents on the financial ramifications of a possible vaccine.
All jokes aside, 2020 has been a helluva year. For the pioneering tech companies like Zoom and Peloton (yes, Peloton – an indoor cycling machine provider can now be considered a tech unicorn, a far cry from the noisy cycling machine somebody’s Dad had in their basement 25 year ago), shareholder fortunes have been amassed.
For the less so fortunate, ‘traditional’ companies have seen their share prices decimated in a matter of days and weeks. Once a shinning beacon of the FTSE, EasyJet, saw their valuation drop by over two thirds from their 12-month peak-to-trough because of Covid-19.
And so, the script was written. The king is dead, long live the king and the former acolytes who once looked up to the cherished MVP status now rule the roost.
“Zoom and Peloton have had the best ever free trial roll out to customers who would have never heard about them otherwise.”
Goodbye Rolls Royce, c’est la vie JD Wetherspoon, sayonara Live Nation Entertainment and Hilton Hotels – well you can just eat my shorts!
Welcome in the new market Kings! Peloton – an exercise bike with an iPad! Zooooom, modern day MSN Messenger. And Roku, a new TV channel – BUT ON YOUR IPAD!
Or so that’s what we thought. The market has a wonderful habit of catching investors flatfooted and unprepared. Just days after the news of a possible vaccine from Pfizer the script is suddenly flipped and any association with PTON and ZM is quickly refuted.
My Twitter feed is filled with light-hearted jokes that their account had been hacked after talking up the new-wave of tech giants are not only here to stay, but will take over the world.
I did a thorough search of some of the Twitter accounts who were talking up the future of Zoom and Peloton pre vaccine news but, shock horror, the tweets seem to have been deleted. Which is a shame, because they may have been too quick in writing off their affiliation with said companies.
Exercise bike with an iPad or modern-day MSN Messenger, we still need to fulfill day-to-day tasks like communicating and exercising. But innovation has a big say in this and so, companies like Zoom and Peloton exist. I singled out these two companies because I can vouch for the product.
As of last week, I’m a paid Zoom customer and for several months now, I’ve been using my sister’s Peloton bike (shout-out to Louise, the best sister in the world).
You might be able to tell already, I’m possibly the most cynical man in Europe. So new gadgets and the latest state-of-the-art technology is, by default, frowned upon by myself. But there’s only so much frowning I can do before having to admit defeat. Last week, I hosted (for the first time) the most important meeting of my life. I was able to bring together 4 people from different corners of the UK and interact with each other on a meaningful level.
And the Peloton bike, it’s honestly up there with one of the best workouts of my life (and I’m saying that as a former heavyweight white-collar boxer).
What we do may not change, but how we do it will. So, it stands to reason that innovation walks in and takes over the shop.
Last week however, PTON and ZM shareholders were given an almighty kick to the gonads and a serious wake-up call. This WFH lifestyle number is up – a new vaccine seems to be showing good and tangible results.
The lockdown kings Zoom and Peloton fall from the sky. 25% and 20% intra-day drops proceed. ‘What should I do Tim?’ shouts a Mitto Markets’ client (Ged).
Ged’s got a bloody good point. What should he do? For the record, he holds a noteworthy amount of Zoom shares.
I’ve grouped Zoom and Peloton together because, despite them being completely different companies, they share a common denominator. One that means, if you stay at home, you’re more likely to use them, and if not - then well, you’re less likely to use their service.
They both trade at a very high multiple of their forward earnings and both bear the weight of tremendous revenue growth expectations.
I’ll admit, when Pzifer’s news of a viable vaccine hit, I had a slight panic (for my good friend Ged, at least). How will the market perceive this news? Badly it seems (as pointed out earlier). It’s all well and good to have a company valuation skyrocket on the hope that they’ll see their top line revenues steam on ahead with a lockdown lifestyle, until those expectations are hit with a sledgehammer.
There’s two ways of looking at this recent news break.
Oh dear, we’ll all be going back to the office and returning to gyms and thus, who needs a Zoom subscription or an overpriced exercise bike?
Zoom and Peloton have had the best ever free trial roll out to customers who would have never heard about them otherwise.
I’m going to throw out a wild card third option. A bit from option 1, and a bit from option 2. Indeed, they’ve opened up to a whole new audience, and some may drop out from using their respective service post Covid-19. But maybe they’ve done just enough to become part of our daily routines for years to come.
As relatively new market players, Zoom and Peloton will be counting their lucky stars. Such customer growth wouldn’t have been achievable without Covid-19. The nation had their hand forced into buying such products. It’s now up to ZM and PTON to prove their worth.
As the founder of a start-up myself, you can only dream of such an introduction to the market. Does the recent vaccine news mean their top-line revenue will drop 20-25% overnight like the share price drops would suggest? I doubt it. However, will their forward growth projections now get thrown into jeopardy? Quite possibly. And if their growth projections are thrown into jeopardy – then it becomes a trickier game to call.
Personally, I can’t help but think these companies are here to stay, lockdown or not. We’ve been introduced to a new way of living.
I suspect the next 6 months will be a rocky road filled with good and bad vaccine news – dictating the short-term share price fluctuations of said companies. But the real question is, are these multi-decade tech stayers like Apple, Amazon and Microsoft? They too, had their naysayers in the dot com crash of 2000. But here we are, all telling our friends that we told a friend to buy them in the lows of 2000. And that we’d be worth 6.8tn by now if we held onto them.
It’s important to note at this point, volatility is normal. If you’re reading this and thinking about investing in individual equities, then you need the gospel truth which is that share prices go DOWN as well as up. Get over it.
Here’s a stark reminder to those who quit on Apple at the 1st, 2nd, 3rd, 4th, 5th…. hurdle;
Apple’s share price has declined
>10% 27 times
>25% 17 times
>50% 6 times
>75% 3 times
Since IPO in 1980, they’ve returned 125,000%.
In conclusion, this was an incredibly difficult piece to write. Simply because I’ve gone back and forth in my head as to if these companies have real substance or if they’re just a fad. And after using both services, I can’t help but think they’ll remain in our lives for many years to come. Additionally, I’ve got a real bee in my bonnet about buying stocks with such high valuations, as they’re normally priced with such huge expectations with more downside risk to any kind of blimp. But given their early doors explosive growth, I’m inclined the believe the former.
Having weighed up the pros and cons, I can’t predict if they’ll be more buyers than sellers over the next 6 months, but as a long-term bet - I’d have no qualms in seeing these companies in my own portfolio.
If you’ve enjoyed this article and want to start your investing journey, feel free to reach out to me personally on t.sunderland@mittomarkets.com or call +44 (0)208 159 8985
Important Notice: When investing in shares, your capital is at risk. The value of the investment and any income from it can fall as well as rise, so you may get back less than your original investment.