Motley Fool: Moving beyond videoconferencing
Sun., Dec. 4, 2022
Zoom Video Communications (Nasdaq: ZM) delivered triple-digit revenue growth (year over year) for several quarters following the onset of the pandemic, but growth decelerated sharply over the past year, and shares were recently down 68% from their 52-week high.
But don’t count out Zoom. It divides its customers into two groups – online customers and enterprise (business) customers. While the number of online customers exploded during the pandemic, they haven’t all stuck around. So Zoom shifted its focus to enterprise customers, a group that’s easier to retain and is more open to upselling. Enterprise customer numbers grew 18% year over year in the second quarter, while revenue from enterprise customers rose 27%.
Zoom’s brand recognition paved the way for a land-and-expand growth strategy that is gaining momentum. Zoom Phone surpassed 4 million seats in August, up 100% over the past year, and two newer products look promising: Zoom Contact Center is an omnichannel customer service solution, and Zoom IQ for Sales is AI-powered software that analyzes conversations in Zoom Meetings to help sales teams work more productively.
Zoom isn’t a buy-it-and-forget-it kind of stock, but it has multiple ways to fuel growth, and long-term investors should take a closer look. (The Motley Fool owns shares of and has recommended Zoom Video Communications.)
Ask the Fool
Q. What are “buffer” ETFs? – C.D., Brooklyn, New York
A. They’re exchange-traded funds designed to reduce investors’ risk by limiting their losses. That sounds good, but the funds also put a cap on gains. There are now more than 100 buffer ETFs and a few mutual funds of the buffer variety.
It’s worth knowing that buffer funds don’t actually hold individual stocks or bonds – they’re more complex, investing in options. They also may not limit losses as much as you’d want. Per the folks at Morningstar, buffer funds were down more than 12% year to date as of the end of September. Each such fund specifies a buffer percentage, which might be up to 30%, and its investors usually only suffer losses if the underlying index drops below those limits.
Buffer funds can differ widely, so research any you’re considering. Or take an easier road: Invest your long-term dollars mostly or completely in the stock market, understanding that there will be some extremely good and bad years – and that over long periods, the stock market has generally gone up.
Q. What’s a “defensive” stock? – R.P., Kalispell
A. Defensive stocks belong to companies that aren’t too affected by fluctuating economic conditions. For example, during a recession, many consumers might put off buying big-ticket items like cars or big sofas, and might postpone big vacations. They’re much less likely to stop buying certain other things, though – such as food, gasoline, electricity, soap, diapers, medications and even cigarettes.
You don’t need to avoid cyclical stocks (like automakers, furniture retailers and airlines), but do be careful about when you buy. In the meantime, stocks of companies that consumers depend on can protect you from cyclical swings.
My dumbest investment
My dumbest investment happened because I thought that Jumia Technologies would be the next Amazon.com. – C.H., online
The Fool responds: Given how successful Amazon has been, and how MercadoLibre has grown in Latin America, many investors have been intrigued by any e-commerce company with the potential to grow briskly, especially if it’s targeting an attractive market. Enter Jumia Technologies, which had many people thinking it would become the Amazon of Africa – a continent with a population topping 1.4 billion. As more investors became aware of it and piled in, its stock surged; it increased in value by more than 500% in 2020 alone.
At that point, though, great expectations had been priced into the stock – and they weren’t met. Jumia’s revenue has not grown since 2020, and it has lost money in each of the past few years. In 2021, Jumia’s stock fell by about 72%, and as of mid-November, it had fallen more than 60% in 2022.
A few weeks ago, the company announced that its co-CEOs were stepping down, and some investors worry about Amazon entering Africa. The company may still turn itself around and prosper in the future, but those who invested at high prices have been burned. It’s generally safer to stick to companies with proven track records of growth and profitability.
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