As of press time, Zoom Video Communications Inc fell nearly 7% to US $467.16, with the latest market capitalization of US $134.463 billion.

I. Zoom has soared by 1275% since the IPO.

Shares of videoconferencing service ZOOM surged 47% on Sept. 1, surpassing IBM at $129.1 billion to become one of the top 20 technology companies in the United States by market capitalization. As of press time, Zoom has an offer of $492.6 and a market capitalization of $140 billion.

If Cisco Systems had listened to Yuan Zheng, founder of Zoom, Cisco Systems would have owned the hottest brand today. Yuan used to work for a web conferencing company called WebEx, which was acquired by Cisco Systems Systems (Cisco Systems) in 2007. WebEx was once a pioneer of Internet-based video telephony, but was later swallowed up by the communications giant.

With the improvement of mobile cameras and broadband connections, Yuan Zheng believes that video conferencing can win more customers from phone calls and written instant messages. It has to be more interesting and easier to use than the old WebEx system.

Yuan Zheng wanted to rebuild WebEx, but Cisco Systems refused. In 2011, WebEx has become the market leader in video telephony, accounting for 58% of the business market share, beating CitrixSystems's 13% market share and Microsoft Corp Office Live's 11% market share. As the web conferencing business seemed stable enough, Cisco Systems decided to focus on social networks.

As a result, Yuan Zheng resigned to start his own company, but it was difficult for him to find investors. In the eyes of venture capitalists, the traditional view is that the video phone market is saturated.

On the contrary, many of Yuan Zheng's early investors were family and friends, and the investment made them rich overnight.

This company is known as Zoom Video Communications (code: ZM). The company's stock is one of the most popular "family squatting" companies, which performed surprisingly well during the COVID-19 crisis.

Recent valuations show that Yuan Zheng has a net worth of more than $20 billion. This is a very good result for a Chinese immigrant who has been refused a visa eight times.

Zoom's software products can easily achieve high-quality video calls without an account or software download. At present, most people in the world have to cancel their face-to-face meetings, courses, religious services, family gatherings and fitness activities, and then use Zoom.

By the end of June, Zoom reported a 354 per cent year-on-year increase in the number of customers and a 169 per cent increase in revenue. Results for the quarter to the end of August showed that Zoom's users grew by 458% and revenue grew by 355%.

Of course, when COVID-19 trapped people at home, the number of videoconferences soared. Zoom has become a superstar in this industry. Like most tech startups, it didn't make a profit when it first entered the market, but its user base is growing and its prospects are good.

So far, Zoom's shares have risen 51% on these earnings, up 1275% from around $36 in the April 2019 IPO.

So what would you do at the moment? Will you buy Zoom and hope it will continue to rise rapidly? Or do you feel that you have reached the peak and that it is risky to rise, but you are worried that you will miss out on the good returns because of hesitation? Can the performance of Zoom continue to rise in the future?

Second, Zoom has a price-to-sales ratio of 83 times. How much bubble is there in the market capitalization of US $140 billion?

There is no official definition of a market bubble. Generally speaking, people prefer to use the word bubble when they think the market or stock is overvalued.

More specifically, stocks are in a bubble when the future is unlikely to support current valuations. So, even when the company is most optimistic, does it prove that the company's share price is reasonable today?

Let's take Uber as an example:

When UBER TECHNOLOGIES INC (Uber) was preparing for an IPO, some said it (and shares in other technology companies) was in a bubble, losing about $8 billion a year, valuing it at $70 billion at the time, but only about $14 billion in revenue, meaning it was trading about five times sales.

The biggest question for investors is whether UBER TECHNOLOGIES INC can develop and grow. Is profitability enough to support this?

At that time, some investors thought that UBER TECHNOLOGIES INC had great potential and that Uber would not only be a taxi service company, but also the only transportation company in the United States that would use driverless cars to transport passengers, food and goods. Now that seems unlikely, and if it happens, Uber could become a company with a market capitalization of trillions of dollars. Assuming you think it has a 5% chance, it would now be worth $50 billion.

But the market has become less excited about the future of Uber, and few people think it will become such a behemoth.

According to this logic, Uber is not in a bubble, but it does look overvalued. We don't think it can achieve these goals, nor do we like it as an investment. Since the initial public offering, Uber's shares have been flat.

Let's go back to ZOOM:

• The price-to-sales ratio of Zoom is 10 times higher than the market.

Let's take a look at the valuation of Zoom. We can ignore the profit of Zoom for the time being and only consider the valuation of Zoom from the perspective of revenue. The price-to-sales ratio of a mature company is between 2 and 4 times, and even if the S & P 500 is currently valued at a high value, it is only 2.5 times.

The following is the market-to-sales ratio (price-to-sales ratio) of some well-known enterprises to help you understand the situation:

In the past, a price-to-sales ratio of 10 times was considered a very high valuation. But with the emergence of a new batch of technology stocks, the price-to-sales ratio of more than 10 times sales seems closer to the norm. Today, Zoom has a price-to-sales ratio of 83 times, and its price is eight times higher than its all-time high.

• Can Zoom achieve such a valuation in the future?

Assuming we generously consider Zoom's total sales of $1.3 billion in 2019, Zoom's revenue in the last quarter was $663 million, and multiplied by 4, it is expected that annual revenue will reach $2.6 billion.

Our goal is to make Zoom mature and trade at 5 times price-to-sales ratio to justify its current market capitalization of $140 billion, that is, annual revenue needs to grow to $23 billion, which is almost 10 times what it is today.

But will people spend 23 billion dollars a year on Zoom videoconferencing?

Although the company's management believes that the overall potential market ("TAM") is $43 billion.

But Berry research analysis believes that this sounds very high, for a growth company, the management always exaggerates the "TAM".

On this scale, this means that videoconferencing will generate as much revenue as Starbucks Corp or KraftHeinz. In general, we believe that the market value of Zoom is breaking the limit, not only comparing the value of today, but also exceeding the possible value of the future.

• How to profit from the bubble growth stocks like Zoom?

The problem now is that Zoom is now worth about $140 billion, and it could have a bubble of $116 billion or $100 billion. But just because we can find a bubble, doesn't mean we know when it's going to burst. Can we still take advantage of it?

When you put Zoom into your portfolio a year ago, it will rise by 393%. But this is unrepeatable. If a portfolio gets a 100% return within a year, there will be huge losses on other investments.

Legendary investor George Soros has profited a lot from this situation. He once said: "when I see a bubble forming, I will buy it." "
Many stocks are creating bubbles, and accurate trading is difficult.

Berry research believes that:Even if Zoom or other technology stocks eventually prove that their valuations are reasonable, no stock can go straight up. Because at such valuations, stocks could quickly fall 80% or 90% if they lose momentum.

Therefore, it is rewarding to invest a small amount of money in such stocks, but it can also make people very nervous. At the same time, we do not recommend shorting growth stocks in a bubble, because they are likely to double or triple again before the market comes to its senses.