Facebook Vs Zoom Stock: Which Is Best?

Facebook Vs Zoom Stock: Two companies that performed superbly during the course of the COVID-19 pandemic were Facebook (FB) and Zoom (ZM). But which is the best investment right now – and will their trajectories continue trending upward?

The Bull Case For Facebook 

Facebook has recently hit an all-time high share price of just north of $310. This comes on the back of a phenomenal 12-month run-up that saw its stock grow 80% from around $175 last April – and more than double from the beginning of 2019.

Some might see this as being a strong sell signal, especially since the social networking company pretty much avoided the tech sell-off rout that hit many of its peers earlier this year.

However, looking under the hood, there’s plenty to justify its impressive valuation right now.

To begin with, since the start of 2017, Facebook has consistently posted year-on-year ad revenue growth of 20% at every quarter – the only exception being the first two quarters of the early half of pandemic-hit 2020.

Indeed, Q4 2020 saw its highest growth since Q3 2018, and this came on the heels of the “Stop Hate For Profit” campaign – a movement that threatened to hit Facebook’s business model after hundreds of companies and advertisers abandoned the platform in a mass boycott over the course of last summer.

Secondly, Facebook is still growing its daily and monthly active user numbers to the tune of 11% and 12% respectively. For one of the most mature social networking companies out there, this is quite some achievement.

And given that it still has several less well-developed platforms on its books, such as Instagram, for instance, the potential for further expansion doesn’t appear to be slowing down.

The Bear Case For Facebook 

Given Facebook’s still growing user base and its healthy ad revenues, what could possibly stop Facebook’s stock rising further?

Well, according to the company’s press release for the last quarter, Facebook’s management believe there are several headwinds on the horizon which together could coalesce into something quite serious.

On one front, there’s the disruption to the firm’s targeted advertising initiatives arising from the changes to the iOS 14 platform, as well as the general regulatory environment that is an ever-present concern for a company of Facebook’s size and near-monopoly status.

And then there are the specific data transfer issues coming out of the EU that the company must content with. This data protection dispute has now been escalated, with the case now listed for deliberation at the European Court of Justice.

A bad outcome here could trigger severe repercussions for Facebook that would no doubt negatively affect its share price for quite some time to come.

Why Buy Zoom Stock? 

Just as with Facebook, the video conferencing company Zoom has had a stellar year. Its stock is up nearly 160% since April 2020, and the tailwinds of the coronavirus pandemic have turned this once low-key brand into a household name.

But is Zoom still a buy at this moment? And where will the company’s growth come from?

To answer this question, it helps to look at the vision of Zoom’s CEO, Eric Yaun. It’s here that we see the company’s ambition to transition from being just a conferencing app – albeit an excellent, popular one at that – to an entire telecommunications platform.

In a bid to facilitate this, Zoom is rapidly deploying new product lines and further developing older ones.

The Zoom phone, the OnZoom and the expanded Zoom App Marketplace are all part of this plan, to name but a few. And the firm is also positioning itself for the return of the workforce back into the office with these innovations, suggesting that Zoom’s early pandemic-era success will not be a onetime trick.

Furthermore, the company has a solid bedrock of Free Cash Flow to finance its product roll-out. Zoom grew its cash coffers from $27 million in Q4 2020, to $378 in Q4 2021 – a 1,320% increase year-on-year that will also underwrite any other spending commitments the company faces over the coming quarters.

Risks Of Investing In Zoom 

It’s clear that Zoom faces a wide array of competition in the video communication space. And despite the fact that the total addressable market in telephony is estimated to be worth £23+ billion by 2024, how much of this will Zoom really capture?

There are big name firms with teleconferencing solutions already on the market, such as Skype and Slack, and even legacy organizations like Microsoft (MSFT) and Cisco (CSCO) have products ready to use.

Perhaps it will all come down to the power of Zoom’s moat in the sector. The firm has demonstrated a great network effect since the pandemic began, and its brand recognition is huge.

But will this be enough?

Revenues are already trending lower over the last three quarters, and a big question will have to be answered as to where its enterprise growth comes from to sustain expansion. Its share price is down 35% from its October 2020 highs, and it’s worth considering whether the market is factoring this pessimism into its valuation. 

And it’s still not entirely apparent how Zoom will finesse its monetization strategy. These questions all represent uncertainties for Zoom, and how they are answered will ultimately dictate the direction that the business takes from now on.

Facebook Vs Zoom Stock: Conclusion

Both companies have enjoyed all-time high price points during the pandemic, but each business offers something very different to the investor.

Facebook’s maturity and stability – as well as its steady, continued growth – will be an attractive buy to those seeking a value play in the social network space. 

Alternatively, Zoom is operating in a high-growth environment and is seeking to take a slice of an expanding market. Profits could be big here, but the path forward isn’t as straight as it might otherwise appear.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.