ZM, DOCU, TDOC down on vaccine news

ZM and other WFH stocks were up significantly in early pre-market trading when this news broke:

“The first interim efficacy analysis of the large-scale Phase 2/3 clinical trial evaluating Pfizer (NYSE:PFE) and BioNTech’s (NASDAQ:BNTX) COVID-19 vaccine candidate, BNT162b2, showed it to be more than 90% effective seven days after the second dose in preventing infection in participants with no evidence of prior SARS-CoV-2 infection.”
https://seekingalpha.com/news/3633509-pfizer-biontech-covidm…

Almost immediately prices started declining, and as I write (~7:30am) ZM is -12%, DOCU -8% and TDOC -5%. Other SaaS stocks show collateral damage. This is a premature reaction on very preliminary data, and likely a buying opportunity.

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Selling these companies while the US is reporting record Covid cases each day and a new president coming in that is open to locking things down again…not smart. I will be buying up some today.

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That’s why I didn’t want to buy e.g. Zoom (or any “Corona” stock). I believe in the company, product and business model. But because no matter how ridiculous this overreaction is, it is happening right in front of our eyes. Working from home isn’t going anywhere anytime soon.

Even if this or any other vaccine proves to be useful, vaccinating the population effectively should take years. These vaccine candidates are on the lightning-track, skipping all kinds of necessary procedures which normally take years and years. There’s a reason for that.

But rationality is not the Maxime today.

This is also why a regular investor can’t simply “copy the board”, since I am sure the big shots had a proper reaction plan and executed quickly. I’m simply holding on to whatever I had, thinking of this as a buying opportunity once markets are open.

My investing thesis in work from home businesses is that the world is forever changed. I completely expect a reactionary stock market to news that things may be going back to “normal,” but the new efficiency that has been discovered by utilizing telehealth (to replace ordinary visits for prescription refills), video conferencing (to replace travel expenses), and electronic signatures (to replace printing and shipping costs) will not be discarded because we are able to walk around without masks. That is what I believe.

Nate

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“That’s why I didn’t want to buy e.g. Zoom (or any “Corona” stock).”

Zoom is up close to 400% since March, why would a possible reactionary 12% drop stop you from investing in a great company?

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We knew this was coming.

However, has anything fundamentally changed for our companies? No. As said above, I will take many months to produce, supply and globally administer a vaccine. But currently cases and lockdowns are raging.

In the meantime, general attitudes towards WFH have changed. I believe it is there to stay, at least partially. And the transition towards remote working and communicating is only beginning, as is the transition towards cloud IT (more pandemic-independent admittedly). A lot more meetings will be conducted online than pre-pandemic.

While it is never nice to see our stocks suddenly down by 15-20%, especially after the recent beat-down, you can be sure that the growth of our stocks is not going to take an immediate hit, and I would go so far as to say that ZM is again going to blow the doors off in its next ER.

Of course when seeing the Dow shooting up, it is easy to call oneself stupid for missing it, but that is hindsight. If anything, risk is bleeding out of our stocks, and that’s good news.

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I have to correct the way I had written this. Of course I did buy shares of Zoom and other such companies irrespective of the change to their stock price. In the case of Zoom, I was late to become convinced and entered in the recent 500s+ only. I was wrong and made the change. Once I was convinced, I knew that I had to get in, but that the timing probably wasn’t great since we were expecting such a “vaccine news” nearly anytime now. This latter bit is pure market timing, but based on a fact. This fact is starting to hit, as proven by the immediate effect of this bit of news.

“Once personal conviction is high, don’t hesitate to enter a stock”. It is not a full position yet, but it is sizable for me and was started near the recent ATH. Since my investment thesis and conviction is unchanged, I will add to it and others as I see fit. Of course I feel bad for having entered at the worst possible time in hindsight, but it doesn’t really matter in the long-term.

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I should add that the simple categorization of some of these businesses as “work from home” is contributing to the market reaction. That label implies that they are dependent on people working from home. Instead, I categorizes them as efficiency businesses, in that they save there customers time and/or money.

Nate

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“I should add that the simple categorization of some of these businesses as “work from home” is contributing to the market reaction. That label implies that they are dependent on people working from home. Instead, I categorizes them as efficiency businesses, in that they save there customers time and/or money.”

This was going to be my exact response. It’s obvious that some of the companies we are invested in have experienced tail winds due to the rapid shift to working from home, but the reality is most of these SAAS companies really have nothing to do with “working from home” in the grand scheme of things. This is software companies are still going to use regardless of where their employees are located. It’s also clear that working from home is not going anywhere, especially now that we’ve learned it really does not have the impact to productivity as some might have thought.

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This is completely a macro reaction.

These companies have been WFH “safety” darlings. They will transition to their true intents being “efficiency” levers.

This is not news, and is a buying opportunity. If you are trying to rotate out of companies you hold and into these, you could do worse for buying points.

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Agreed - there’s a one day sale on several stocks that are beyond a simple WFH play.

I sold out of the last of my Abiomed and AMD and top sliced my Palantir and Square and have topped up:

SEA - eCommerce isn’t going away after covid
Docusign - who wants the hassle factor of printing, signing, scanning, filing etc again regardless of CV

Zoom - Covid has changed the office life forever. Who wants just audio calls now when you can have video and even if the whole team goes back to work at the office except just 1 or 2 individuals then you still need to video conference everyone in. (Not that I believe everyone will just return - working from anywhere and business travel has changed forever)

Teladoc - tele health is here to stay and this the acuteness of healthcare worker shortage is going to need every form of productivity gains in healthcare. This is a no brainer.

I’ve also started in a position in:-
EXPI - incredible results and this has 10x potential all over it, the market has been distracted from rewarding these results

Ant

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Nate,

I agree with your sentiment about the likelihood that certain forms of virtual behaviors may be with us for the long term. The bigger question is HOW MUCH of this new style of interaction will recede with the mitigation of the Corona Pandemic. Might some activities become routinized -let’s use PTON as an example - to the point where folks won’t return to the gym?

Much of this is uncharted territory in social and culture behavioral patterns.

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I Just entered a position in EXPI as well.

I have a couple of real estate clients that have recently switched over to EXPI with others planning on it and they cannot be happier. The company offers them a ton of resources, simplifies the buying and selling process, and provides a super competitive commission rates.

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Excellent point, and one that I was considering this morning.

ZM is safe. Here is one example of why. Higher education, and primary education for that matter, has seen the light. Universities are expensive to maintain. Like we see with our SAAS companies, online education boasts much larger profit margins (if it’s appropriate to call it that). Best part, though, is that you broaden your applicant pool to the entire world, potentially, instead of just a narrow geographic region. And not just student applicant either; now you can hire exceptional faculty/instructors that otherwise wouldn’t have been willing to move.

TDOC is safe. I’m not suggesting it is the best place to put investment dollars to work, but I firmly believe that it has a commanding lead in the future of ordinary medicine and the behavioral treatment of chronic conditions. Who wants to take time off work and sit in a waiting room to just to be verbally interviewed.

PTON is an interesting case. Why might customers still flock to PTON when gyms are back in full force? The top reason that people exercise is to lose or maintain weight. Easiest solution is to exercise and eat fewer and better calories. And exercise doesn’t need to be extravagant; the best exercise for weight loss turns out to be walking. Sure you would burn more calories per minute running, but for the average person trying to lose weight they might only be able to run for a few minutes before fatigue. Therefore, walking for a longer time burns more total calories than running (on average). So, why with such easy and inexpensive solutions like diet and exercise is weight loss a trillion dollar industry? People need motivation and they need a plan. They think to themselves, “I don’t feel motivated to get up extra early, drive to the gym, exercise for a bit, shower at the facility, and go to work. But if I had a bike in the house, and a trainer leading me through a workout, and less time wasted driving, and the ability to shower at home, and an online community to support my efforts, I think I might actually stick to a routine this time.”

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"That's why I didn't want to buy e.g. Zoom (or any "Corona" stock)."

Zoom is up close to 400% since March, why would a possible reactionary 12% drop stop you from investing in a great company?

Is it because as the investing 101 mantra says, past performance is not an indicator of future results? I mean, we here know it’s not entirely that simple, but the italicized bit above is something of a loaded question. I wouldn’t tie ‘recent ~400% growth’ so closely with ‘stop you from investing in it’. It’s been a great company, but stock performance off the March low is not the reason, it’s a result. I interpreted the first line of this reply to mean that RevTK doesn’t see the current situation the way others here do. To some investors, this might not be so much a “possible reactionary 12% drop” as a signal that there’s a risk of an individual losing money by buying ZM today within their own individual investing context (risk tolerance, diversification, ownership horizon, knowledge base, etc). RevTK’s subsequent reply shed some light on this, but I thought this possible “remember our motleyness” moment was worth pointing out.

-n8 (started ZM position late last month, not concerned right now)

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"PTON is an interesting case. Why might customers still flock to PTON when gyms are back in full force? The top reason that people exercise is to lose or maintain weight. Easiest solution is to exercise and eat fewer and better calories. And exercise doesn’t need to be extravagant; the best exercise for weight loss turns out to be walking. Sure you would burn more calories per minute running, but for the average person trying to lose weight they might only be able to run for a few minutes before fatigue. Therefore, walking for a longer time burns more total calories than running (on average). So, why with such easy and inexpensive solutions like diet and exercise is weight loss a trillion dollar industry? People need motivation and they need a plan. They think to themselves, “I don’t feel motivated to get up extra early, drive to the gym, exercise for a bit, shower at the facility, and go to work. But if I had a bike in the house, and a trainer leading me through a workout, and less time wasted driving, and the ability to shower at home, and an online community to support my efforts, I think I might actually stick to a routine this time.”

I fall firmly into that last sentence - my schedule is very full and I prefer to exercise either at home or ride around my area instead of going to a gym. Right now I am lucky to get 30-60 minutes a day for exercise (work is very busy and my family time is very important to me), so I run mainly on our treadmill.

right now I have not subscribed to PTON for my treadmill runs, as i tend to watch Youtube videos on topics I am interested in while I run. I am thinking of trying out their program to see if it resonates with me. Not sure it will, I really like watching videos or movies, but since I am invested in PTON I should check it out.

I am long PTON with only about a 3-4% position. I bought a bit more today. I think this sell off is premature, as others have stated. I do plan on watching this one carefully however.

Dave

Another thought that just came up in a conversation with a colleague, relevant as many of our stocks here seem to have a negative correlation with the perceived covid-19 situation:

The trial did not include anyone over 55 or high risk adults, those with diabetes, those who smoke etc. And these results are only for the first 7 days of the trial. While super promising and much higher efficacy than many expected it’s not beyond the realm of possibility that the final results (1) may not generalize to the humoral immunity of these population groups (2) we could see an adverse event before the trial is completed.

More likely, I suspect that the final efficacy will be lower than 90% when we see final results as these things are range bound… but it’s great news and I’d rather have a few down days and have a strong vaccine candidate that will save lives than the opposite. Another not talked much about insight is that the trial will probably get a quicker read out than expected because we are in the middle of a rapidly rising epidemic curve so the outcomes will occur more quickly.

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Almost immediately prices started declining, and as I write (~7:30am) ZM is -12%, DOCU -8% and TDOC -5%. Other SaaS stocks show collateral damage. This is a premature reaction on very preliminary data, and likely a buying opportunity.

It’s certainly an interesting reaction, hardly rational though. It’s still going to be ages before the vaccine is fully tested and production ramped up to make it available for enough of the population to get inoculated to even consider a return to normalcy, enough time for the WFH infrastructure to become that much more entrenched.

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Excellent point, and one that I was considering this morning.

ZM is safe. Here is one example of why. Higher education, and primary education for that matter, has seen the light. Universities are expensive to maintain. Like we see with our SAAS companies, online education boasts much larger profit margins (if it’s appropriate to call it that). Best part, though, is that you broaden your applicant pool to the entire world, potentially, instead of just a narrow geographic region. And not just student applicant either; now you can hire exceptional faculty/instructors that otherwise wouldn’t have been willing to move.

TDOC is safe. I’m not suggesting it is the best place to put investment dollars to work, but I firmly believe that it has a commanding lead in the future of ordinary medicine and the behavioral treatment of chronic conditions. Who wants to take time off work and sit in a waiting room to just to be verbally interviewed.

PTON is an interesting case. Why might customers still flock to PTON when gyms are back in full force? The top reason that people exercise is to lose or maintain weight. Easiest solution is to exercise and eat fewer and better calories. And exercise doesn’t need to be extravagant; the best exercise for weight loss turns out to be walking. Sure you would burn more calories per minute running, but for the average person trying to lose weight they might only be able to run for a few minutes before fatigue. Therefore, walking for a longer time burns more total calories than running (on average). So, why with such easy and inexpensive solutions like diet and exercise is weight loss a trillion dollar industry? People need motivation and they need a plan. They think to themselves, “I don’t feel motivated to get up extra early, drive to the gym, exercise for a bit, shower at the facility, and go to work. But if I had a bike in the house, and a trainer leading me through a workout, and less time wasted driving, and the ability to shower at home, and an online community to support my efforts, I think I might actually stick to a routine this time.”

Interestingly, all three of these were excelling before the pandemic. Last year’s revenue growth for the three was 88% for ZM, 32% for TDOC (128% for the LVGO component, I believe) and 99.6% for PTON.

Multiples and growth may be temporarily distorted by the pandemic. But these three were pre-pandemic winners so they might be expected to continue their winning ways post-pandemic.

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I had only recently sold out of FSLY, so had a sizable chunk of change to buy today…

Did so by adding most of it to ZM and PTON, but also added to CRWD, DOCU, and TDOC.

I consider today to be a premature overreaction to the vaccine news for the same reasons so many here have already pointed out.

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