'Zoom Fatigue' Sets in for Everyone but the Shareholders

By Berna Barshay

Monday, June 1, 2020
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How many Zoom meetings is too many?

I had one of those weekends where I couldn’t escape video-conferencing app Zoom Video Communications (ZM). From my college reunion to my daughter’s spring dance recital, all events were canceled… and in their place, a Zoom meeting.

I was tickled to hear 105-year-old Joe Schein from Princeton’s class of 1937 – the oldest living alum of my alma mater – deliver a Zoom speech. But I was also curious how he had managed to master the technology when I’ve had challenges getting members of my family to figure it out who are 40 years his junior!

The last event of my five-Zoom weekend was watching my daughter tap dance. As much as I enjoyed it, I’m officially suffering from “Zoom fatigue,” and I know lots of folks who are, too… including my normally hyper-social, extremely compliant daughter.

All of sudden, Zoom wasn’t making her happy anymore. And at the moment I had to abandon sunshine in order to plug in to what is beginning to feel like the Matrix for the umpteenth time, I realized maybe it isn’t making me happy, either.

Last week, online news and opinion site Vox asked a question close to my heart: “Are Zoom weddings, happy hours, and dates actually making us lonelier?”

In the article, psychiatrist and professor Gianpiero Petriglieri best summarized the reason for our love/hate relationship with Zoom…

Every time you connect to a Zoom call, you are having two experiences at the same time: the experience of reaching, and the experience of what you’ve lost.

Vox cataloged the perils of video-conferencing – silences that could be a bonding moment in real life turn awkward online, and freezes and delays make it hard to land a joke. But of its many shortcomings, the format’s greatest weakness is its inability to replace touch…

The brain needs to know that it has backup – that someone else is there to help should the need arise. Physical contact is the simplest, most powerful way of communicating that…

The absence of touch is a loss many people are feeling deeply right now, as is the sense of community we get simply from moving through a large crowd of people.

Zoom presents extra stresses for women, and a sales opportunity is born…

Over the weekend, I was bombarded with marketing advising me how to be Zoom-ready. With hair salons, manicurists, facialists, and other personal grooming services still closed across much of the U.S., a cottage industry is popping up in helping women present their most attractive selves on Zoom.

Google “how to look good on Zoom” and you’ll get pages of results of YouTube videos and article listings everywhere from USA Today to women’s magazine Marie Claire.

In my inbox, I was alerted that a large statement necklace was “the accessory” of the quarantine to make an impression on Zoom. Another e-mail told me which lipstick shades would look best on my computer camera. And while reading an article on an unrelated subject, I learned I’ve been doing Zoom all wrong because I don’t have my computer sitting on a stack of books that would present my neck from the most flattering angle.

None of this should be a surprise. Last month, Vox documented how most women aren’t giving themselves a break, despite the many pressures of home and work life that have befallen them during the pandemic…

Over the past seven weeks, sources told Vox, women of all ages and professions have been picking apart their own appearance via teleconference.

They include a literary agent brainstorming with authors (“I didn’t have the chance to put on makeup”), an executive recruiter interviewing C-suite candidates (“Sorry I’m so casual today”), the owner of an all-women marketing agency (a chorus of “I didn’t get to shower” disclaimers), a woman trying to enjoy a boozy virtual Sunday brunch with girlfriends (hair lamentations all around), and a high school senior whose science teacher apologized for looking like she just woke up and whose English teacher requested forgiveness for the fact that you could see her roots.

Perhaps most disturbing of all, one middle school teacher at an all-girls school in LA recounted the experience of her students all pointing their cameras at the ceiling during class, because they couldn’t bear to watch themselves on camera without the benefit of an Instagram filter.

Without getting into a debate about whether it’s a good thing women feel so much pressure to always look fantastic even under extraordinary circumstances (hint: it’s not), the quarantine has undoubtedly created opportunities for companies that cater to this moment.

From the early days of the shelter-at-home period through the current retail earnings season, it has been clear that the beauty-products category has somewhat counterintuitively been one of the strongest areas of retail and e-commerce during the pandemic.

One venture-backed firm that’s definitely having a moment is Madison Reed, the hair color company that raised $120 million in capital to date, including $50 million last year.

Madison Reed has a small network of branded salons and sells wholesale to national beauty retailer Ulta Beauty (ULTA). But the core of Madison Reed’s business and what has suddenly made the company a household name during the pandemic is its at-home color kits.

Founded by former E-Trade Financial (ETFC) CEO Amy Errett, Madison Reed uses technology such as augmented reality and artificial intelligence to help users pick the right shade at home online and maintains customer service call centers staffed by professional colorists. The company was at a $50 million sales run rate according to press reports before the pandemic.

We’ll still have to wait to learn how much the quarantine period has boosted Madison Reed’s sales and how many new customers the pandemic allowed the company to recruit (and how many of those will stick).

In the wake of consumer-products giant Unilever’s (UL) $1 billion purchase of men’s shaving subscription startup Dollar Shave Club in 2016 and Procter & Gamble’s (PG) announced acquisition of women’s subscription razor startup Billie earlier this year, I wouldn’t be surprised to see a retailer like Ulta or a giant in hair care like L’Oréal (LRLCY) scoop up Madison Reed.

If that happens, the venture-capital firms behind Madison Reed should probably send a thank you note to the folks at Zoom.

Zoom reports first-quarter earnings after the close tomorrow…

Expectations are for earnings per share (“EPS”) of $0.09 versus breakeven last year, and for sales of $203 million, up 66% from last year’s first quarter.

The company is clearly in hypergrowth mode in terms of both revenue and new user acquisition. And it’s definitely priced for that growth as well as its current cultural dominance, trading for a massive 61 times enterprise value (“EV”) to sales and an equally outsized price-to-earnings (“P/E”) ratio of 247 times future estimates.

It’s astounding that Zoom went from 10 million meeting participants per day back in December to 300 million by late April. But valuation isn’t the only thing keeping me on the sidelines… it’s also competition.

Tech giants like Facebook (FB), Microsoft (MSFT) via Teams, Alphabet’s (GOOGL) Google through Meet, and Cisco’s (CSCO) Webex are chasing Zoom with new features and functionality… and they’re also seeing surges in usage. Google recently said Meet is up to 100 million daily participants, and 300 million people now have a Webex account.

The caution I feel with Zoom is similar to the reservations I expressed a few weeks ago in Empire Financial Daily about another star of the pandemic – collaboration software company Slack Technologies (WORK). So far, investors have continued to reward Slack. Shares are up more than 15% since my essay ran on May 14.

Similar to Slack, Zoom is a single-product company with a laser-focus on delivering one service well. This focus on a simple, easily implemented, fast solution to a communications challenge with sudden and unanticipated surging demand allowed Zoom to be fast out of the gate.

In the longer term, I question whether the company will be able to compete with better-capitalized tech behemoths who can integrate their video conferencing products into other enterprise software, and give it away for free if needed to prompt widespread adoption.

If I owned Zoom, I would certainly be looking to lock in some profits. It’s possible we’re only in the 7th or 8th inning for this stock and momentum can carry it a little further… but I’d temper the instinct to fight for the last dollar on an already incredible investment and redeploy to another security that offers similar reward prospects but with far less risk.

Knowing when to sell is one of the keys to long-term investing success…

Far too many folks watched their hard-earned gains evaporate in the COVID-19 sell-off earlier this year. Some panicked and sold at the bottom. Others stayed on the sidelines and watched as the market rallied at an unprecedented pace – up more than 36% in a little more than two months.

That’s why my colleague Whitney Tilson took time out of his busy day last week to appear in the Recovery Investing Event, where he shared his most up-to-date market outlook, as well as how to know when to get in (and out) of stocks.

Whitney even revealed the name and ticker of two of his favorite “recovery stocks” during the event. If you missed the event, you’re in luck… For the next few days, you can watch a replay right here.

In today’s mailbag, readers share their streaming preferences…

Are you also suffering from Zoom fatigue like I am? Are you using it for work? Personal meetings? Both? Share your thoughts at [email protected].

“At 78 and living alone I have a lot of time to decide how to use. Most weekdays I’ll spend 10-12 hrs following the mkt or reading about it. I subscribe to Netflix, Fire, AT&T cable smallest package. 70-80% is local or cable. I usually use Netflix if I want something unusual, and use Fire for music. The ATT pkg was 1st 12 mo. $60.00 mo. 2nd 12 mo. $150.00. I received over $600 in free money or services to start this contract. I never planned to do more than 12 mos. the penalty being only $240 to drop the last year. When that began I called to cancel, they gave me basic pkg. over 100 channels. It covered everything I wanted for $55. mo. I also canceled HBO max. I like HBO & will try to get it at a better price if I don’t already have it in my current pkg, which is what it sounded like you were saying today.

“I have only left the house once for a bank run using the drive thru. I have most comorbidities I hear talked about, so my condition prepared me for the stay at home life. I would go out 2-3 times a week with friends. The stay at home rules has affected me less than anyone I know.” – Steve F.

“I use Spotify for music and Netflix for movies. YouTube for everything else.” – Wane I.

“Hi Berna, I’m all for good, old-fashioned competition because it gives us consumers better quality services, products and prices. Another streaming service coming on to this already crowded space should bring to us better quality shows, productions, lots of work for actors (who are known to struggle for lack of work, usually), and more competitive prices for the service. However, it does strike me as odd that the ‘newbie’ comes aboard with the highest asking price of them all..! It makes me wonder if their intent is to push the others to raise their own prices, instead of encouraging to offer us lower, more competitive membership fees? I think it’s a risky move that, I hope, backfires on them.

“You ask if there is a streaming company I couldn’t live without? Netflix. So far, I don’t see another one that matches Netflix. [Lots] of copycats, but nothing to make me want to unsubscribe from Netflix for good. Thanks so much for your daily insights.” – Marilyn S.

Regards,

Berna Barshay
June 1, 2020

Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.