Zoom video communications shouldn’t waste much sleep on Facebook
Focus on video communications (NASDAQ: ZM) was one of the hottest growing stocks of 2020. Use of Zoom’s video conferencing platform has increased as the COVID-19 pandemic has forced people to stay at home, and its stock jumped more than 140%.
However, Zoom’s stock recently plunged after Facebook (NASDAQ: FB) launched Messenger Rooms, which increases its maximum number of participants per video call from eight to 50. The upgrade could help Facebook keep pace with Zoom, which supports video meetings of up to 100 people on its free tier .
Messenger Rooms joins a growing list of competitors, including Cisco‘s Webex and Tencent‘s Meet VooV, which could carve out a niche in the video conferencing market and dampen Zoom’s weed-like growth. This competition, the bears argue, could push the stock’s bubbly valuation up to about 400 times earnings over time. But if we take a closer look at Messenger Rooms, we’ll see that Zoom probably shouldn’t lose much sleep on this new challenger.
Why Facebook Copy Zoom?
Facebook, which had 2.5 billion monthly active users (MAU) at the end of 2019, is already the largest social media platform in the world. However, its growth is slowing – especially in high-income markets like the United States, Canada and Europe – and it increasingly relies on Instagram for further growth.
Facebook’s growth in developed markets has also been hampered by privacy and security debacles, as well as a loss of younger users on its main platform. Piper Jaffray’s latest “Taking Stock with Teens” poll found that only 31% of American teens interacted with Facebook regularly, placing it in fourth place behind Instagram (85%). Break‘s (NYSE: SNAP) Snapchat (81%), and Twitter (40%).
In short, Facebook needs new ways to expand its ecosystem, so it frequently pursues popular apps with its similar products. He cloned many popular Snapchat features on Instagram, created a TikTok clone called Lasso, deployed dating features give a challenge Meet‘s Tinder, and copied Pinterest with Hobbi.
Messenger Rooms is just the latest expansion of this strategy. It also complements Facebook’s recent introduction of group calls on WhatsApp, live desktop feeds on Instagram, and direct video links between Portal devices and Facebook Pages, all of which widen its gap against video services in full swing. growth like Zoom.
Why Zoom Shouldn’t Be Worried About Messenger Rooms
None of the Facebook clones disrupted niche leaders, for two simple reasons: Small apps had a prominent advantage over Facebook, and they had already created sticky user ecosystems before the intrusions of. Facebook.
Facebook arguably gained the most ground against Snapchat, which slowed the growth of app users in 2018, but Snap returned to growth over the past year as it expanded its ecosystem with new videos, goals, and games. Facebook’s Lasso and Hobbi barely signed up with TikTok or Pinterest users, and the jury’s still out on their online dating efforts.
Most of these small apps were developed by Facebook’s New Product Experimentation Team (NPE), which is developing, testing, and, if necessary, phasing out experimental apps at a much faster rate than its parent company.
Messenger Rooms seems like a more permanent feature, but I doubt its upgrade to 50 users will suddenly push users away from Zoom, which has grown from 10 million daily active users to over 200 million in the first three months of 2020. Facebook has already provided plenty of ways to make video calls as Zoom has grown, so it seems people intentionally migrated from Facebook to the new Zoom platform.
Messenger Rooms could gain more users in overseas markets where Zoom has a limited presence. But Zoom’s growth in America, where it generated 85% of its revenue last year, could prevent Rooms from gaining traction in Facebook’s most profitable markets.
But Zoom investors shouldn’t sleep easy yet
On their own, Facebook’s Messenger Rooms are unlikely to dampen Zoom’s growth. However, the combination of Rooms, Facebook’s other video calling features, and well-funded competitors like Webex and VooV could potentially limit Zoom’s growth, especially if the the pandemic passes and people are returning to traditional messaging apps. Zoom’s recent string of security blunders could also tarnish its image.
Zoom’s shares are also priced to perfection, so any sign of a slowdown, growing competition, or security concerns could lead to a sell-off. As of now, Zoom’s stock has a lot of momentum, but I can’t see it as a viable long-term investment until its valuation cools and shows some stamina after the end. of the pandemic.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.