At the beginning of 2021, I shared this note where I highlighted some trends and the stocks that I own in my portfolio to benefit from these trends. I will be sharing my thoughts on those thoughts in the next couple of weeks. This is the first of those articles.

In that article, I picked Zoom (ZM), Teladoc (TDOC) and Twilio (TWLO) to beat the stock over the next five years. Let’s see how they have done so far in 2021.

 

Stock Jan 1, 2021 Price

This Year 

High

This Year

 Low

Current

 Price

Performance
ZM $337.32 $451.77 $175.27 $194.86 -42.23%
TDOC $199.96 $308.00 $88.25 $102.05 -49.00%
TWLO $338.50 $457.30 $235 $274.81 -19.00%

 

In one word. Ouch!

All three of them are down anywhere from 19% to almost 50%. All three of them went up initially in the year and then have been trending downwards for rest of the year. As I have written many times before, stock price never tells the whole story. Follow the business to understand what is going on. Looking at the stock price, it might seem like that these businesses are headed towards bankruptcy. Is the situation this bad? Let’s find out.

  1. Zoom (ZM)

Zoom Revenue Growth and Year-Over-Year Growth

For Zoom, Fiscal 2022 is the calendar year 2021

 

Year Q1 Q2 Q3 Q4 Total
2020 $122m(103%) $146m (96%) $167m (85%) $188m (78%) $623m(88%)
2021 $328m (169%) $664m (355%) $777m (367%) $883m (369%) $2.65B (326%)
2022 $956m (191%) $1022m (54%) $1051m (35%)

So, the revenues of Zoom grew 35% compared to the previous year in the most recent quarter. Next quarter, they are guiding for about 20% growth in revenues. Overall, they are expecting about $4.00B revenue this year. That would put them at 51% growth compared to the previous year. So you might ask why is the stock price of ZM down 42% this year. I am not sure of the exact reason. 

One of the reasons in my opinion is that the growth is slowing down. Zoom pulled a lot of growth forward in 2020 and now its growth is slowing down. As you can see, it was growing revenues at 326% in the previous year and this year it will grow revenues by “only” 51%. Many people believe that all three stocks that I am writing about in this article are Work from Home (WFH) stocks and their “perception” is that these businesses are headed towards extinction because COVID is over and their customers will no longer need them. However, if you will read the quarterly results of Zoom, you will see that that is far from the truth. Zoom is still acquiring customers at a healthy rate and launching new products and they have a young founder and CEO at the helm.

As I said when I picked Zoom to beat the market that I plan to hold these stocks for a minimum of 5 years, I am still holding and perhaps look to add to my position over time.

2.  Teladoc.

 Teladoc Revenue Growth and Year-Over-Year Growth

 

Year Q1 Q2 Q3 Q4 Total
2019 $129m (43%) $130m (38%) $138m (24%) $157m (27%) $554m (32%)
2020 $181m (41%) $241m (85%) $289m (109%) $383m (145%) $1.09 B (98%)
2021 $454m (151%) $503m (109%) $522m (81%)

Teladoc’s growth in revenues look very similar to that of Zoom. A company that was growing in the 25-40% range before the pandemic started growing in the 50-150% range during the pandemic and now that life is coming back to normal, the growth rates are declining. Teladoc is guiding for a 42% growth in Q4 2021. 

One complication with Teladoc is that it acquired another similar size company called Livongo (LVGO) in 2020 and that makes the numbers lumpy. That acquisition also led to large losses in 2021 and some write-offs. But as they are coming on the first year anniversary of that acquisition, management has mentioned that those losses and write-offs should be over. I will be watching that closely. For now, I am not adding to Teladoc and watching the story as it plays out until 2026. 

3. Twilio

I wrote about Twilio Q3 2021 here and absolutely nothing has changed in the story since then except the price. I still own TWLO and will look to add as more money becomes available.

In summary, I want to comment on the story of these three stocks using this picture

Over time when the market is euphoric, the price is overvalued and when the market is pessimistic, the price gets to be undervalued. The true intrinsic value is somewhere between those two and visible only in hindsight. 

All three stocks that I talked about in this article experienced an euphoric 2020 when they were growing in triple digits and now all three of them are experiencing a pessimistic 2021 when their growth rates have come down significantly from 2020 but still above their normal growth rates before the pandemic.  However, I have to ask myself whether their growth days are over and nobody is using these three companies anymore. Or whether they are digesting that growth and are still growing above 20% per year. The true value of the stock is somewhere in between and all three of these businesses are executing flawlessly and I remain excited for their future.