- Europe and the US experience rising infections
- A vaccine could be months away
- Social distancing this winter
- It’s hard to fight Zoom’s bullish trend
- Limelight Networks could have lots of room to rally
2020 began with hope and optimism. The US economy was booming with unemployment at the lowest level since the 1960s. The stock market was making new highs, and the US and China signed a “phase one” trade agreement with hopes of a comprehensive deal that would level the playing field for commerce between the world’s two leading economies. In Europe, Brexit became a non-issue as Prime Minister Boris Johnson won a mandate to exit Europe and establish economic and political independence for the United Kingdom.
The global pandemic began in Wuhan, China, and hit the world like a ton of bricks. The worst virus since the 1918 Spanish Flu wreaked havoc with infections and fatalities worldwide. The worst impact came in the United States. Lockdowns and cessation of business activity throughout broad sectors of the economy caused unemployment to skyrocket. Growth turned to contraction.
Meanwhile, technology companies that support communication and the offsite work experience thrived as the rest of the economy faltered. Shares in the video conferencing site, Zoom Video Communications, Inc. (ZM) soared. A second wave of the virus could send the shares even higher in the coming months. Moreover, we are likely experiencing a substantial change in how businesses operate in the future, and ZM is likely to benefit.
Limelight Networks, Inc. (LLNW) is a company that has been around a lot longer than ZM. LLNW was founded in 2001, ten years before ZM. LLNW shares did not experience the same price action as Zoom over the past months. The shares are inexpensive at the $6 level and could have significant upside potential.
Europe and the US experience rising infections
Scientists had warned that the second wave of COVID-19 could arrive during the fall and winter months. We all had hoped that the virus would go away as quickly as it descended on the world, but that does not appear to be the case.
Rising cases in Europe portend a rough period for the United States. Earlier this year, the number of infections rose across the Atlantic soon after Europe experienced its surge. The United States remains the home to the highest number of reported cases and fatalities, with approximately 8.5 million infections and over 225,000 deaths. Those statistics look set to rise over the coming weeks and months, with dire consequences for the economy.
A vaccine could be months away
Scientists are hopeful that a vaccine will stem the tide in 2021, but that is a long way off considering the pace of coronavirus. Once the FDA approves a vaccine, it will take an extraordinary effort to inoculate people in the US and worldwide. Those in the high-risk categories will be the first to receive an immunization. When it comes to the entire population, it will be a herculean task to accomplish mass immunity.
Meanwhile, some people will resist the prophylactic injection for fear of side effects and other reasons. The bottom line is that the coming surge in cases could weigh heavily on the US and global economies and cause a sudden return to the environment earlier this year.
Social distancing this winter
Most people that venture outside their homes these days are wearing masks when encountering other people. While businesses have reopened, social distancing rules have become the norm rather than the exception. The higher the number of cases rises over the coming week, the more stringent local governments will become when it comes to enforcing the rules. Moreover, the potential for shutdowns will increase.
Some experts suggest that the coming weeks and months could be a period where the virus peaks. Healthcare professionals have learned a lot about treating the symptoms of coronavirus since early 2020. However, the virus remains deadly for many high-risk cases. We should prepare for an increase in social distancing rules. The holiday period in 2020 could be a lot less festive and lonelier than we have ever experienced. The shopping season will suffer from a high level of unemployment. While online shopping will continue to thrive, retail establishments that have struggled to remain in business are likely to experience another, perhaps fatal, blow.
It’s hard to fight Zoom’s bullish trend
ZM is a company that has thrived through the global pandemic. The company provides a video-first communications platform worldwide. ZM’s products have enhanced work from home business environments, have fostered communications and relationships, and have allowed people to communicate and see each other. ZM has been a product that reaches across all stitches in the social and business fabric.
Over the past week, I attended my nephew’s wedding on Zoom. The product has not been without controversy. The leading legal correspondent on the CNN network found himself in an embarrassing and scandalous situation due to abysmal judgment and questionable behavior during a series of Zoom conferences.
When it comes to the stock, the trend has been that ZM is becoming a barometer of the virus’s severity.
The chart shows that the shares took off on the upside during the height of the global pandemic as the demand for ZM products skyrocketed. ZM was trading at $68.04 at the end of December 2019. On the final day of January, the stock closed at $76.30. As the coronavirus began to attack the world in February, ZM shares settled at $105 on February 28. During the risk-off period in the stock market in mid-March, ZM only fell to a low of $100.88. by September 1, ZM shares peaked at $478.
In early September, the number of cases declined, sending ZM to a low of $345.68. Since then, the return of rising infections pushed ZM to its most recent high of $588.84 on October 19. ZM shares were around the $520 level on October 22.
ZM is a company that has turned social distancing into profits.
Source: Yahoo Finance
The chart shows that ZM has been consistently profitable and beat average analyst EPS forecasts over the past four consecutive quarters. In Q3, the company earned 92 cents per share compared to a forecast of 45 cents. ZM will report Q3 earnings during the week of December 4, and analysts expect EPS of 76 cents per share. The odds favor a higher number when the company releases its latest earnings data.
ZM is not an inexpensive stock. The company had a market cap of around $150 billion at $520 per share. Over ten million shares change hands on average each day. I look at ZM as a barometer of the impact of the virus, and that trend could continue over the coming weeks and months. ZM has also taught us something that we learned from Twitter (TWTR) and Facebook (FB), and other social media platforms about our online behavior. If you are not sure what I mean, just Google (GOOG) Jeffrey Toobin.
Limelight Networks could have lots of room to rally
LLNW is a company that I have my eyes on these days. LLNW did not experience the same share explosion as ZM and other technology companies in 2020. LLNW provides content delivery and related services worldwide. Limelight operates private networks that deliver websites, mobile applications, videos, music, software, and games. It offers live and on-demand video delivery services and platforms. LLNW helps organizations manage, publish, syndicate, analyze, and monetize video content. It provides cloud services and security. Limelight Networks has been around since 2001, with its headquarters in Scottsdale, Arizona.
As the chart shows, LLNW opened at $23 per share in June 2007. It then traded to a high of $24.33 before turning south for the next thirteen years. At $6.11 per share on October 22, the company offers value with its suite of products.
Source: Yahoo Finance
The chart shows that LLNW beat analyst projections in Q2 2020 when it reported an EPS of three cents. The company will report Q3 earnings on October 22, and analysts expect EPS of two cents.
Source: Yahoo Finance
The chart shows that annual revenues have been trending higher. The environment in 2020 supports a continuation of the trend. A recent report commissioned by Limelight said that streaming video content reached an all-time high because of the global pandemic. The stock traded to a high of $8.19 in July; technical resistance is at just below the $9 level. The high in 2010 was at $8.97 per share. LLNW could be a stock with lots of upside if the trend in streaming continues. With a market cap of over $745 million, LLNW could be a juicy takeover candidate for a slew of cash-rich technology companies.
The second wave of the coronavirus could be bullish for ZM, which is an expensive stock. It could also foster gains for LLNW, which looks like a bargain.
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ZM shares were trading at $511.52 per share on Friday afternoon, down $9.02 (-1.73%). Year-to-date, ZM has gained 651.79%, versus a 8.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More…