What do you do when the principal stock that has gained during the lockdown finally disappoints? Do you sell everything related to the work-from-home, stay-at-home thesis? Is it over?
That's what traders reacted to when Zoom Video Communications (ZM) , the darling of the era, didn't smash records, bring in vast new clients or top the earnings estimates with sufficient strength. Zoom represents the way individuals, small business, schools, and large enterprises have learned to speak to each other even as there are others, Cisco (CSCO) , Alphabet (GOOGL) , and Microsoft (MSFT) with very competitive offerings.
I don't want you to fall prey to this kind of thinking. Just because Zoom didn't blow the numbers out doesn't mean that the trend is over. In fact, I would argue that it's nowhere near over because we have a permanent switch away from the central office and a radical change in how to do business, in the same way that Doug Peterson from S&P Global (SPGI) consummated his deal with Lance Uggla from IHS Markit (INFO) , as they told us last night after their $39 billion deal.
What 's the confusion here? I want to take you through today's session to show you what went wrong and where the opportunities were simply because people drew false conclusions from the Zoom call.
First, I hate to break it to people, but Zoom had amazing numbers. Did they obliterate the estimates? Yes. Did they furiously raised their forecast? Completely. Did they reveal giant contracts that they stole from big enterprises? No. That led to a theory that its gross margins aren't as special as they once were because they are handling lots of free smaller clients instead of going after elephants. Given how expensive the stock was, it could have been due for a fall. Darned stock is still up 500%. I just don't think you can draw a conclusion that the work from home stay at home thesis has been destroyed by a company that has more business than it can deal with even as that business isn't quite as lucrative.
So what's the evidence that things are still alive and well in this at home theory. Let me give you some data points.
First, Amazon's (AMZN) stock was down big this morning off the alleged Zoom shortfall. What an opportunity as word got out very soon after the decline that Amazon had a fantastic cyber Monday as can be expected given the possibility of a dramatic and unstoppable increase in Covid. It's foot race between your getting the disease and your getting the virus, and one way to prolong your health is to simply stay at home and order away. Zoom be damned? Or Zoom be fine?
What buttresses the Amazon story? How about an upgrade of FedEx (FDX) given what Barclays called an "acceleration of e-commerce market adoption." That doesn't sound like the end of the at-home thesis to me.
Second, Micron (MU) , the gigantic DRAM commodity semiconductor company guided up significantly this morning. It wasn't that long ago that Sanjay Mehrotra, the CEO, came on Mad Money, with the stock at $41 and said it was too cheap and the company was going to buy it hand over fist. It was one of those moments when you couldn't go a day without someone slashing numbers and trashing the stock. Today the stock hit $67, an all-time high. Management knew a heck of a lot more than the Peanut Gallery. Micron has a lot more pin action than Zoom will ever have. I think Micron is a sign that the work from home story remains strong and is not a pull through.
I say that because last night Dell (DELL) told a story of a fabulous holiday season. If your house is you're your school room, your home entertainment center and your office you need more PCs and that's what's driving the revival of notebooks and laptops. It's an extraordinary cycle and it is so not over.
We had another day today where we are getting a sense that Apple's (AAPL) having a very Merry Christmas. There are stories abounding that there are long lead times, that there are issues with availability that would indicate that business is very strong. That's exceptional and a sign that this stock, which has been stuck in the mud, is now breaking out. Everything, every part in any Apple product, soared today including Qualcomm (QCOM) and Skyworks Solutions (SWKS) . Those stocks just have legs beyond what people ever expected.
If you want some data about how persuasive the thesis might be just consider some data given to us last week from Slack (WORK) , the possible subject of a takeover bid from Salesforce (CRM) . "In a normal post-Covid 19 environment, CIOs expect 38% of employees to work from home routinely up 18% pre crisis with 94% expecting work from home to remain a durable trend." Pre-Covid, Slack tells us, only 17% of CIOs had more than 20% of employees working from home, while 75% expect to have more than 20% work from home POST Covid-19.
How about people who think that perhaps the so-called Zoom slowdown might signal a slowdown in the economy? I am not buying it. The rails keep hitting new highs. They don't lie. They are a sign of more commerce. The car companies don't lie. Last night we got a jolt from Carvana (CVNA) about how strong the used car business is. Freeport (FCX) , our largest copper producer, has a stock with about the best chart in the book. This morning Alcoa (AA) , our biggest aluminum company, said demand is getting stronger. Nucor (NUE) , our nation's largest steel maker, got a stock that's suddenly roaring. WestRock (WRK) , the commodity cardboard company, is just two bucks from its high. All the chemical stocks have had phenomenal runs.
Finally Airbnb, a natural pandemic investment, is coming public, raising $35 billion in the process. When no one traveled during the lockdown business suffered, but now we have a pandemic thesis that's blowing the doors off. Now that people travel they would rather go to someone's house, and stay away from a lobby or an elevator or a room cleaned by someone who might be infected. Far better to just rent an Airbnb and bring your own wipes.
It's pretty clear, also, that we could get something from Congress and Treasury that will tide people over until we get a vaccine. We know that President-elect Biden made that clear over and over again today when he named his economic team.
So now let's circle back to Zoom and what its decline means. In a vicious negative market like we have been used to when we got bad stock news, Zoom could have taken everything down. But because we are in a bull market we were able to distance ourselves from the decline and accept an alternative thesis that was far more positive buttressed by multiple data points.
The fact is that business in whole areas of the economy remain very strong despite what you heard this morning. A good market is one that can shake off negative news. A great market is one that can ignore it entirely.