The coronavirus pandemic exposed the rift between the old and new economy. As countries closed their borders, stay-at-home measures were enforced and many traditional businesses struggled, we only saw this rift grow.
Tech stocks have outperformed in response: Year-to-date the Nasdaq 100 has surged 38%, while the Dow Jones has eked out a gain of just 3.6%.
This trend reversed somewhat over the last month, after it emerged that an effective COVID-19 vaccine(s) may soon be available to the public. In that period, the Dow has outperformed the Nasdaq, pushing past the 30,000 mark for the first-time and raising alerts that we may be set to see a greater rotation from growth to value.
In the short-term, investors should pay attention to the comparable performance of these benchmarks to gauge the potential strength and longevity of this rotation.
Why Zoom’s earnings matter
Trading at 604x earnings, video conferencing company Zoom has little margin of error to disappoint when it unveils its results on Monday, November 30. For growth stocks trading at high valuations, merely beating estimates has often not been enough in 2020 – one must beat estimates significantly or face the wrath of investors.
The coronavirus pandemic has acted as a significant tailwind for Zoom, with the stock up a staggering 582% year-to-date.
This share price run has been built off the back of a staggering operational performance. Zoom smashed Street estimates as part of its Q2, reporting revenue growth of 355%, vastly improved cash flow, while the number of customers driving revenue in excess of $100,000 more than doubled.
On these upcoming results, RBC analysts said:
‘As we enter the fiscal 3Q report, we continue to see material upside to guidance/consensus expectations both in the quarter and for the year.’
Whether positive or negative, investors should closely watch the Zoom share price following the Q3, as well as monitor how/if other stay-at-home stocks and the tech complex in general reacts to the quarterly report. Markets rarely move in isolation.
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