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Hey Fools,

In show biz there's an old saw, "show don't tell." It doesn't matter who someone says they are, it matters what they do under pressure. My favorite example of this is Chicago Cubs 3rd baseman, Kris Bryant SMILING as he fields a ground ball to make the final play, in extra innings, of game 7, of the World Series, after the Cubs had gone 107 years without winning the World Series. He did almost gunned the ball wild to first, but he made the play. His true character was revealed: Bryant comes through in the clutch.

The reason we love Plot Twists is they put characters under pressure. When you walk to the store to get some milk and you get some milk and come home we learn nothing about who you are. When you walk to the store to get some milk and a gunman robs the store and you jump between him and a small child you are one person. If you shove the child at the gunman and run out you're another kind of person. There's a hilarious episode of Seinfeld where George Costanza is at a child's birthday party, and when he thinks there's a fire he rushes out screaming, and knocks over kids, old people as he races out screaming, desperate to save only himself.

This brings us to Zoom's CEO, Eric Yuan.

The term "hero" is a synonym for Main Character/Protagonist and doesn't necessarily mean hero as in superhero. But I'm okay with those who view Yuan in that sense.

Having studied the market and watched CEOs and as a life-long sports fan, I've noticed some qualities in the best leaders. These are:

Intelligence
Humility
Kindness, Empathy
Constitution
Authentic passion for the mission
Positive energy - they radiate goodwill, have no axe to grind
Comfort in own skin
Calm under pressure

A comforting thought in dark times is that good really is stronger than evil. A family, team, army, even a nation that truly loves itself and its members is stronger than one that is rife with backstabbing, ego, etc. For example, I noticed during the Cubs run, guys often seem to smile at each, stand with arms around each other. FC Barcelona, arguably the greatest team of all-time had a core of guys who literally grew up together. Messi is tough as sh*t but he often seems to smile at his teammates and encourage them. I saw a documentary about the 1994 New York Rangers and Assistant Captain, Adam Graves said it was the most he ever loved his team. They had so much fun that he couldn't wait to get to practice.

So with all this in mind, let's look at Eric Yuan. I am NOT an expert in Zoom and haven't done a deep dive, but I trust my gut on this JUST BY LOOKING AT HIM. This is basically how the Zoom story has played out ...

Yuan works on a product at a video conferencing product at a big company and is not proud of it. Money doesn't make people happy. Doing meaningful work does. He is not happy though he's very well paid.

He leaves the company to build a better product.

He creates a product designed for large enterprises.

The company takes off and his highly regarded.

A global pandemic erupts, and tears through the entire world, upending life as we know it. Essentially all the world goes into hiding - but people still desperately need to connect with loved ones, co-workers, houses of worship, schools, etc.

Though there are competing products from some of the biggest companies in history, the world rallies to Zoom. This is mostly because it's the simplest to use but no doubt - none whatsoever in my mind - it's because Zoom is a killer brand name. It's just plain fun to say you're "Zooming."

But the company is not even remotely prepared to scale so that hundreds of millions - if not billions - of human beings, make that traumatized human beings can use the product under hyper-stressful conditions.

Try as hard as you can to put yourself in Yuan's shoes under these conditions. Remember, our companies are run by human beings just like us - with marriages and children and parents and friends and toothaches and self doubts and fears, etc.

As people use the product - school kids, families, churchgoers, GOVERNMENTS - EVIL people, hack into their sessions and put pornography, violent images and racist insults in them. I'm a New York Rangers fan and was horrified to see a Zoom interview with a young prospect who is a person of color, K'Andre Miller. He seems like a real nice kid and during the interview some despicable savage pig broke in and scrawled the N-word. I will never forget the look on his face - in one of his very first moments in the limelight, he's insulted in the most cowardly and vile way. He looked so shocked and profoundly hurt. Horrible. Just horrible. Anyway...

As these attacks breakout, and are grossly exaggerated in the news, Yuan and Zoom are savagely attacked. I know nothing about the tech, but the gist of accusation seems to be they deliberately left users vulnerable to attacks in order to increase adoption and lied about security features to line their own pockets. And that they were dishonest about it. Yuan, an AMERICAN citizen of Chinese descent is called "Chinese" and, with the virus having originated in China, is attacked by some with thinly veiled assaults on his patriotism. Ugly, ugly.

Again, I have not done a full deep dive, but this is what I've seen...

Yuan goes before the cameras and says that he takes responsibility.

He promises to be transparent, and to fix the problem.

He doesn't rage at his detractors or get into petty squabbles. A noted techie, the founder of Basecamp/Ruby was particularly vicious to Yuan on Twitter. Yuan doesn't rage back.

What does Yuan do?

He rolls out a 90-Day Security Plan and post updates like this one...

https://blog.zoom.us/wordpress/2020/05/27/90-day-security-pl...

He does Webinars called "Ask Eric Anything" and seems to address the nuts-and-bolts issues of encryption that are at the heart of the issue.

The product sometimes has some issues but by all accounts - and literally every single person I know is using it daily - it works. I have zoomed with friends, family, co-workers, etc. One or two times it was either slow or didn't work but the overwhelming majority of the time it works. In fact I even had a very big meeting and my friend in a smaller town in Colorado couldn't get cell phone reception, and Zoom saved our meeting.

Here's an article from a site called Gadgets 360 -

Zoom urges users to update app...
https://gadgets.ndtv.com/internet/news/zoom-update-app-versi...

Articles like this are all over Google today.

But here's an article on CNN (I know, I know but it's a good article...) It captures the essence of a Plot Twist (which is really just expectation clashing with reality) in it's headline...

Everyone you know uses Zoom. That wasn't the plan.
https://www.cnn.com/2020/05/21/tech/zoom-founder-eric-yuan/i...

Some notable things from the article with my emphasis in bold...

Yuan blames himself for not anticipating that users might want to share a screenshot of a meeting. For his business clients, sharing a screenshot of your board meeting would be unthinkable. But business clients weren't his only worry anymore. The world had become his customer.

Read that last line again. Who the **** else ever had something like this happen? When the emotions of all of Planet Earth are running so high? For many people, all kidding aside, Zoom might be the last time they see/talk to a dear loved one. Deaths, births, marriages, graduations... Zoom is being SEARED into the emotional DNA of us all.

He refers to this time as the most stressful weeks of his life, which now consists of three things: Zooming, eating and sleeping, and he's barely been doing much of the last one.

Again. Try to imagine the pressure on this one man.

The article discusses bias he faced while working at Cisco on WebEx because he didn't speak great English.

My wife used to run biz-dev for a software company's Latin American division. I traveled with her throughout the region. Though it was awesome, I don't speak Spanish or Portuguese. And I can't tell you what a miserable feeling it was to be out to dinner with executives and have no clue what people were talking about. And those moments where someone would talk to me like I was an imbecile, explaining what was just said, are not fond memories. It changes you. It teaches you how it feels to be underestimated and treated with condescension.

How did Yuan handle this?

While Yuan couldn't control how others understood his English, he focused on what he could control: his work.

"I knew two things from my father: keep working hard, stay humble, and someday you'll be OK," Yuan said.


Mock my raw emotion if you must, but this line downright almost makes me cry. For real. It's the essence of true character. Note the respect for his father. Note the lack seeing himself as a victim. Note the humble expectations. Note that his interest is not in sticking it to the man. His goal is to be "okay." I ****ing love this guy.

If you look at the article - and I strongly encourage you to - look at the photo of Yuan in the background, of young Yuan with of a group of WebEx coworkers after they IPO'd. Look at the warmth and sincerity of the smile on his face.

I didn't realize it was an IPO and the company was acquired by Cisco. This is another killer attribute of leaders - past success. You bet your cracked bottom it's an indication of future success. Yuan referred to WebEx as his "baby."

Hey math snobs - how do you put the valuation of a founder's authentic passion into your models? Do you divide it by the square root of your bum?

Anyway...

Bottom Line

Eric Yuan is The Man. This is one of all-time great CEOs in the making.

The stock market is quite possibly the greatest living theater ever made. The most incredible, consequential stories play out with real-life heroes and villains before our eyes. And make no mistake - dead-souled, corporate monstrosities like Cisco are the villains of our age. ANET too had people desperate to flee it's spirit-crushing, innovation-free culture.

We don't follow and love the market because it's to make money. We do this because we love it. And we love it because, at its best, it's a true meritocracy. And it's at the very heart of the best way for human beings to live and conduct business. Eric Yuan is everything that makes America and capitalism truly great. I hate the excesses infecting our system. But I love leaders like this.

If Saul et al say the numbers are there, I say the soul and the greatness is too.

I'll put my Foolish rep on the line. I say they're gonna SMOKE the numbers and that this will be one of the best investments over the long haul there is. Since there was a big run, sure they get get lit up in a market-wide crash. But I love this company root for this company. If a noble, innovative, cool bunch of people control how we communicate that is a big, big, big deal.

If I lose all my money on this pick I wouldn't lose an ounce of sleep. Again, remember - this is so key - LIKE ATTRACTS LIKE. Great people attract great people. Good people attract good people. Kind people attract kind people. Watch "Tiger King" on Netflix and note the hornet's nest of lunacy Joe Exotic attracted. The opposite is true. When you, in your own life, move through the world with kindness, conviction, intelligence, doing what you were meant to do it's insane who and what comes out of the woodwork to help you. **** - this is the essence of Fooldom!

I just spent hours on this post when I should be doing my job-job. Why? Cause I love, admire and respect this community so much. We are, and always have been, (Miraculously) the polar opposite of the rampaging negativity that is scarring our culture and tearing us apart.

My gut tells me Zoom has the very best of the very best people. They see in Yuan what I see. And as Hamlet tells the smarty-pants Horatio after seeing the ghost of his dead father, "there are more things in Heaven and Earth than are dreamt of in your philosophy." What if there is an actual soul, or spirit, of true love in Zoom that is fueling the global obsession with this product? I know how idiotic and New Age stupid that sounds, but I also know it's true. And cynics can laugh all they want while we line our pockets off that love. It's Foolishness to the core.

Okay. I swear I meant this to be a two paragraph post. I really apologize for my voluminosity but I just don't have time to cut or even typo check it.

Fool On,


Broadway Dan,
Long and Strong $ZM
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ARGGHHHH so sorry for the bold bungle.
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Dan,

You have more aliases than anyone. Great post. I do agree 100% on the CEO's character/humility.
I'm slowly getting convinced on this company. Still skeptical on current valuation, but it's on my watch list.
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I've been spending some time on glassdoor the past few days, reading reviews and checking in on some of our beloved companies. It's an interesting glimpse into people's experience. Admittedly, one has to talk everything with a pinch of salt because who knows how many of the positive rules are solicited from HR and how many of the negative reviews are from disgruntled employees.

But Glassdoor is important, because talent wants to live in a nice place that pays well. If I was a new grad, or changing careers, I would be paying attention to Glassdoor. So I went to check it out. Some interesting notes...

DataDog seems like an intense place to work. It's not fluffy puppy town. Tough environment.

Alteryx has more of an old school business vibe. It doesn't really have a startup culture and there are mixed reviews on how it is handling its cultural shift that accompanies hypergrowth. Some complaints about response to Covid 19. A general sense that Designer is their bread and butter, but there isn't much innovation happening beyond that. In short, the reviews make it seem as though Alteryx is legacy tech deep down.

The Trade Desk was one of Glassdoor's best places to work in 2017, but the ratings have dipped a bit since then. People talk about growing pains.

Okta doesn't seem like a bad place to work, but also not great.

Roku and Pinterest have some very unattractive reviews

So who are the Glassdoor stars?

MongoDB
Docusign
Zoom
Slack
Nvdia

All of these companies have excellent reviews of both their CEO and have employees saying they would recommend them to a friend.

For what it's worth
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Before someone beats me to it...

Livongo needs to be added to the glassdoor all star list.
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Great post, Broadway Dan!

I 100% agree that Eric Yuan is an incredible leader. Some time in the last year I watched a YouTube video of him speaking and the feeling was a big - WOW - this person is someone special. Love it. Love it.

And I hope that you are right and that the market agrees and that our hero wins.

However, we all know that our stories have ups and downs.

I seem to recall that in the last year, Zoom got THWACKED once or twice.
I recall that somehow with Zoom, I had managed to buy low, sell high, and buy back in low again (with small amounts, but goodness, I actually looked for a minute like I knew how to do this stock market stuff).

Seeing Zoom get THWACKED reminds me that, it can get THWACKED again. There is no guarantee to a happy ending. I think that we will get a happy ending but you know that these stories have twists and turns.

Hmmm. Perhaps I have seen my favorite herione, Katrina Lake of Stitch Fix stock legend, get THWACKED over pretty good results and doing a darn fine job quarter after quarter, and pehaps that is holding me back from expecting our hero, Eric Yuan to ride into the sunset this quarter.

Happy endings. There is no guarantee. Zoom was not loved. Now it is loved. Will it stay loved?

I have been thinking about taking a little profit and seeing if I can get lucky and sell high, buy back in low *again* but that seems Foolish to think I can pull that off more than once.

But I am not convinced that Zoom is going to the moon. Not on any kind of a smooth ride, at least.

Karen
long ZM
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Another nice recent article about Yuan was posted to CNN last week.

https://www.cnn.com/2020/05/21/tech/zoom-founder-eric-yuan/i...

I do worry that when the story of a stock reaches the mainstream, it can easily get into bubble territory. Most of the enterprise software stocks followed here are relatively hidden from a typical retail investor. So in the short term, combined with the massive rise of retail investors at home who have nothing better to do, the stock may take a hit.

At the same time, a recent podcast from Ben Carlson at A Wealth of Common Sense (he is younger but in my opinion still a very traditional portfolio manager) talks about Zoom's valuation.

https://awealthofcommonsense.com/2020/05/animal-spirits-valu...

In short, they completely dismiss Zoom's competitive advantage and wonder how it could be valued more than 5 major airlines combined.

Discussions like this remind me that traditional portfolio managers are still in the mindset of looking at traditional valuation metrics. This is where most of our high growth stocks are undervalued. Because a very significant portion of the market won't even consider it based on traditional metrics and other individual investors have never heard of the companies, valuation of the companies is inefficiency and we're able to take advantage of that to great gains.
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I remember when Priceline went public in 1999 or so and some said it was overvalued because they were priced higher than certain airlines. And how could an airfare checker be priced higher than an actual airline.

I didn't read the article mentioned but I'm sure we all know to compare Zoom with market cap of airlines is pretty irrelevant. They all have their own profit margins and capital expenditures that are very different than Zoom. It's like arguing Microsoft shouldn't be worth more than a paper mill because all computers are doing is replacing typewriters.

I don't know about Zoom. It seems to be the most discussed here probably because it is the biggest market cap and highest price of any discussed here as well as got a kick from coronavirus.
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I felt the same way about him when he was on Mad Money. He was just honest, and the gist of what he said was, "Look, you wouldn't believe what I have had to do over the last few months, but I did it all because I want to help the world."
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At the same time, a recent podcast from Ben Carlson at A Wealth of Common Sense (he is younger but in my opinion still a very traditional portfolio manager) talks about Zoom's valuation.
In short, they completely dismiss Zoom's competitive advantage and wonder how it could be valued more than 5 major airlines combined.


Well, he did admit it was an "apples to peanuts" analogy, which to me is acknowledgement of the stupidity of it. The comparison was cherry-picked to capture trailing earnings with current stock prices, and what it really does is point out that the much-maligned Mr. Market is actually pretty forward-thinking. So while he said he wondered, he also said he understood.

The interesting part to me was what I thought his real point was, which is comparing stocks like SHOP and ZM today to Amazon in 1999. That, just as the market recognized in 1999 that Amazon was a "company of the future," today the market recognizes the Shopify and Zoom are companies of the future. And that's all fine and true, but if we look back to 1999 the companies of the future were so highly valued that in many cases the prices stagnated or worse for over a decade before they grew enough to be worth all the optimism a decade earlier.

So when you write:
I do worry that when the story of a stock reaches the mainstream, it can easily get into bubble territory. Most of the enterprise software stocks followed here are relatively hidden from a typical retail investor. So in the short term, combined with the massive rise of retail investors at home who have nothing better to do, the stock may take a hit.

I agree with that, but also think that it's maybe not just potentially a short term hit. And on the other side, what is the potential for these stocks? I've got a 10-bagger in my early SHOP, and thanks to a lucky sale/rebuy even my later purchases were gangbusters. But, is there another order of magnitude gain possible in SHOP or ZM? Doesn't seem that way to me.

Maybe it'll be less controversial if we look at TAM and market share. What is the TAM for Zoom? Certainly the TAM for video conferencing has grown gigantically recently. But ZM's stock price has already benefitted from that. I think the question moving forward is not whether Zoom will be successful (it will), or that it can grow (it will) - but in order to really grow from this point it has to take market share from other companies. Zoom can certainly do that, but to what extent?

Its competition isn't sitting on their hands. With Microsoft has hit the airwaves with TV ads for MS Teams (emphasizing video conferencing), I am sure that it is also putting an ever greater emphasis on its sales force working with existing MS customers (running Outlook365 for instance) to adopt/expand Teams. Cisco's been emphasizing its existing security capabilities in the wake of Zoom's mis-steps. Yes, Zoom is doing all the right things with regards to improving its security, and that's great at stopping the bleeding, but will it lead to future growth or is it now just another expense to tread water? Cisco has even gone further, into Live TV (https://www.sporttechie.com/cisco-webexs-live-tv ).

My point isn't that Zoom is doomed. Far from it. And I'm not a valuation hound by any means. But, valuations will remain high only as long as the market believes the company will soon enough grow into them. That comes from a combination of actually growing and showing the promise of even more future growth. So far, both SHOP and ZM are doing that. For how long will they continue?
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