Probabilistic Thinking and Zoom
In his most recent post "Is It Lady Luck Or Mad Skillz" @stocknovice had a line that stuck out to me:

"Probabilistic thinking is an area where successful investors shine."
I decided to take that thought and use it in my analysis of Zoom, which I am reviewing for my Investor's Club meeting this upcoming Friday.

Here is how I'm thinking about the potential futures Zoom may face. I would love to hear your thoughts on where you would place the "Subjective Likelihood of Occurrence" for the following scenarios:

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If you want to join the 30min meeting and chat about Zoom in person next Friday, the meeting will take place at 3:00pm PST. Open invite.
First, thanks for the shout out. I appreciate it.

I'm clearly a ZM bull as it's my number one holding. Looking at your numbers, I think the ranges are pretty good. My solely personal thoughts on a couple:

Zoom Apps Take Off: I'd go higher, maybe 25%. ZM just announced its Zapps 3rd-party app platform, which should come online by the end of 2020. There were 25 launch partners including some major players. Zoom also announced updated Software Development Kits to make it easier for developers to incorporate Zoom's features. With the basic infrastructure and program already in place, I think the likelihood here is better than 15%.

Business Travel Capitulates: In my opinion this scenario needs a more specific definition. I'd say the likelihood a "certain percentage of business travel never comes back" is 99.9%. I can with 100% certainty say my industry has already made permanent process and headcount adjustments that will use more video in the future and save many millions of dollars in travel expense. The real question is where that "certain percentage" settles and how much of it comes ZM's way. If you're thinking high enough to be a true revenue leader for ZM, I'd say your 30% is a good number. If you're thinking big enough to consistently move ZM's revenue needle, I'd say it's more like 50%.

I'd also suggest one more Potential Scenario, and that would be "Zoom Owns the Hybrid Workplace." No one knows exactly what it will look like, but there’s a good chance 2022 and beyond ends up as some sort of hybrid set up for most firms. In that case, Zoom seems very well positioned to take advantage. Zoom Phone, Zoom Rooms, the home set up Zoom released last month, new encryption standards…Zoom is setting itself up as the leading end-to-end solution for whatever hybrid mix develops. People sometimes forget ZM's core business has always been enterprise, so they are very in tune with the needs of business customers. Our world has gotten more complicated, which has in turn put more pressure on businesses finding solutions that “just work.” Zoom has a chance to be the go-to name in this space. Microsoft, Slack, and others could have some say here, but I'd give this scenario about a 20-25% chance of playing out.

Again, these are my opinions only and I'm hoping some others chime in because its always worth double-checking a company thesis. Good topic. Thanks for bringing it up.
Aquiba Benarroch, CFA's avatar
This thought process should be incorporated into every investment decision and revisited frequently. Such a smart way to refresh conviction levels based on new information (like the 3rd party apps @stocknovice mentioned.)

Thanks for sharing, Nathan!
Nathan Worden's avatar
Thanks @aquiba !

I totally agree- I find that after doing a lot of research on a stock, its great to have a written out mental model like this to reference quickly when there is new information to synthesize.
Josh Worden's avatar
I'll take "There Was No Moat After All" as my prediction, though it may take a while
Nathan Worden's avatar
I was originally going to give 'No Moat' a higher percentage, but then I had two calls schedule on Google meet and another on Skype and the video didn't work for Google meet and the connection was terrible on Skype.

Until these other options work seamlessly every time, I have a hard time seeing a big business that is paying $100,000 to Zoom every year switching to something that is worse. I imagine the reliability is worth paying for to them.