$ZOOM can be a short play now that the world is on it.

Updated: Apr 18

Zoom Video Communications, Inc. is a communications technology company headquartered in San Jose, California. It provides video telephony and online chat services through a cloud-based peer-to-peer software platform and is used for teleconferencing, telecommuting, distance education, and social relations.

With the number of daily users exploding from 10 million to 200 million from December to March, it has become a forum for nearly every kind of social function,including happy hours, yoga sessions, school classes, funeral services as well as Passover, Easter and (soon) Ramadan rituals.

However recent issues started coming up:

  • Unwanted people crashing meetings

  • Showing racist slurs or commentary on screens

  • Hackers getting access to webcams

  • Corporations and Govt. officials warning their employees of its use for security reasons

  • Privacy issues as industry experts have raised concerns over Zoom transferring user data to companies like Facebook

But this is not the reason I want to short Zoom.

Fundamental View

I think $ZOOM does not have a moat. In simple terms, there are no barriers to entry. Companies like Microsoft already has tools like Team. It is a very similar tool like Zoom. But it is owned by Microsoft and Microsoft has a great presence in enterprise sales. They already have their products integrated in almost all the well-know corporations of the world. It will be easy for them to bundle it up, offer cost savings to their clients, give it for free even in some cases. Budget holders at these companies want to show decrease in expenses and their compensation is tied to such 'savings'.

Technical View

So far the stock is in an uptrend after breaking out in March due to everyone working from home and the Travel Industry taking a hit. The weekly chart below shows that after clearing out the resistance, the stock consolidated and now formed another Bullish pattern. It can still breakout to the upside and test new highs. However, I will look for exhaustion and reversal in a shorter time frame to time an entry for a short trade.

As it is hard to time such plays - I will look for getting in Put options that are at least year or more out in expiration. That will provide me with enough time to let it play out, and ability to manage the trade should it requires more time to sell off.

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