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Peloton and Zoom Show More Pain for Covid Trade 

2022.08.29 15:54

Peloton and Zoom Show More Pain for Covid Trade 

(Bloomberg) — Peloton Interactive (NASDAQ:PTON) and Zoom Video Communications (NASDAQ:ZM), perhaps the two stocks most associated with Covid-era gains, now are trading below where they were before the pandemic upended life around the globe.

Both the fitness subscription company and the video-conferencing software firm have slumped throughout 2022, building on losses from 2021 that came as the so-called stay-at-home trade began to unwind. Disappointing quarterly results from both last week underscored the difficulty they’re having in holding on to the robust demand they saw as millions worked — and worked out — from home.

Zoom has plunged 86% from its October 2020 peak and is one of the 10 biggest percentage decliners in the Nasdaq 100 Index this year. Peloton has collapsed more than 90% from its record January 2021 record, touching an all-time closing low last month. Bears say there’s no sign that the stocks will recover any time soon, given that analysts are still hacking away at their revenue estimates. 

“Both went crazy during the stay-at-home era because demand went off the charts, and the combination of hype and day traders bidding them up turned them into a bubble,” said Jordan Kahn, chief investment officer of ACM Funds.

The two are hardly the only Covid stocks have seen sharp reversals from their pandemic-era heydays. Netflix Inc (NASDAQ:NFLX) and DocuSign (NASDAQ:DOCU) are the two biggest Nasdaq 100 losers of the year, declining in the wake of disappointing results. 

In addition to the demand headwinds such companies have seen as customers return to offices and gyms, they are also facing an economic backdrop that has turned against stocks with their financial profiles. 

Aggressive moves by the Federal Reserve to combat inflation have led investors to seek out companies with consistent growth or which pay dividends, and away from companies that aren’t profitable or where fast growth rates are cooling off. Last week, Fed Chair Jerome Powell indicated the US central bank was likely to keep raising interest rates.

In another headwind to the valuation of growth stocks, the yield on the 10-year US Treasury note is above 3%, roughly double where it was at the start of the year.

“So much is predicated on the Fed and inflation, and in general this is an environment that is more focused on value and quality, and less hospitable to former high-flyers,” said Quincy Krosby, chief equity strategist at LPL Financial. “It looks like the market has abandoned the Covid trades, but the ones with good fundamentals should eventually find a bottom.”

Those fundamentals remain in question, especially for Peloton, which on Thursday reported a quarterly loss that widened sharply from the prior year, while it also gave a revenue forecast that was well below the analyst consensus. MKM Partners warned of “existential issues ahead,” and the stock fell 18% after the report, erasing a gain earlier in the week, when it agreed to offer bikes and accessories on Amazon.com Inc (NASDAQ:AMZN).

Zoom last week posted its slowest revenue growth on record and cut its full-year sales view, as it didn’t add as many enterprise customers as had been expected. However, the company is profitable and expected to continue growing, factors that Kahn says separate it from Peloton.

“While it got way ahead of itself, Zoom continues to gain traction and it is something I’ll continue to consider as an investment,” he said in a phone interview. “Peloton, on the other hand, seems like a terminal short. It’s projected to lose money for the foreseeable future, and I just don’t know how you determine a floor for that.”

Tech Chart of the Day

The Nasdaq 100 Index fell 4.1% on Friday, its biggest drop since June 13. The weakness followed the comments by Fed Chair Powell, who indicated that the central bank would not soon reverse course in its work to combat inflation. With the drop, the tech-heavy index ended at its lowest since July 27.

Top Tech Stories

  • Jerome Powell’s latest hawkish missive threatens to open up a new front in the ever-raging battle between tech stocks and Treasury yields — potentially hurting money managers who’ve just plunged back into US megacap companies in droves.
  • Trademark filings suggest that Apple Inc (NASDAQ:AAPL) may be staking claim to potential names for its highly anticipated mixed-reality headset, part of the tech giant’s push into its first new product category in years.
  • Meta Platforms Inc settled a long-running lawsuit that claimed Facebook (NASDAQ:META) illegally shared user data with the research firm Cambridge Analytica.
  • The Newport Wafer Fab near Cardiff in Wales has long churned out wafers for microchips used in cars or kettles. Now the UK government is deliberating whether to block a Chinese company from remaining the new owner, exposing the political dilemma between supporting a key industry and keeping Beijing’s influence in check.
  • Reliance Industries Ltd (NS:RELI) will invest 2 trillion rupees ($25 billion) to roll out its 5G services in October across the largest Indian cities, its billionaire-chairman Mukesh Ambani said as he expands and diversifies the $221 billion empire.
  • WhatsApp, the popular messaging service owned by Meta Platforms Inc., is rolling out a shopping product in India, the first time users will be able to browse and purchase groceries and other household products without leaving the app.
  • Ericsson (BS:ERICAs) will wind down its activities in Russia, after previously saying that operations in the country were indefinitely suspended. The Swedish maker of 5G networks has notified employees in Russia “of redundancies because operations are gradually being scaled back,” the companys said in emailed comments.

©2022 Bloomberg L.P.

 

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