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One of the biggest business changes brought about very quickly by the pandemic was the move from face-to-face meetings to ‘remote’ alternatives.
While it took Google eight years to become a verb in 2006*, Zoom zinged from almost obscurity to household name in about eight days – and into the Oxford English Dictionary ‘Word of an Unprecedented Year’ report in 2020. Zoombombing, Zoom-ready, Zoom-friendly and unmute, were all among the tech-related words picked out by the publisher last year.
But as video conferencing took off, business travel was grounded.
Having started the year at $67 a share, the price of Zoom’s stock rose exponentially to $559 at its peak on 16 October 2020**. But as the vaccine rollout began to gain momentum and economies reopened, the stock price started to fall. Today, almost a year later, it is down to $256**, as investors expect a return to the office and face-to-face meetings to lead to much less use of video-conferencing facilities.
And, on the face of it, airlines are enjoying a recovery far beyond even the most bullish expectations. In the US, 79 million people flew in July 2019. By July 2021 63m travellers had returned***. That’s an 80% recovery. In Europe numbers have recovered 70%*** and in China, the numbers are already higher than two years previous.
The trouble is, operating revenue has only recovered 50-60%***. Why? Because business travel is still down. This segment of the market may only represent 12% of passengers, but also represents 75% of profits^.
Airlines have, in fact, slashed their business travel expectations. With many offices still largely abandoned, corporate travel – usually the most consistent, reliable and price-inelastic – is not likely to recover any time soon. Why fly to visit another company if no one is there to greet you?
American Airlines’ share price is down 10% year to date, for example. And IAG – the owner of British Airways – has seen its share price fall around 15% over the same period**.
This being the case, Zoom’s share price must have at least levelled off, right? Not so. Over six months, the company has actually seen its value fall by 25%**. Some of this fall was related to a failed merger, but the rest is down to depressed growth expectations.
So, what the market is currently telling us is that business travel isn’t back, but video conferencing isn’t likely to grow either.
Is this correct or is someone getting it wrong? Is Zoom, or are airlines, undervalued compared to their long-term outlooks? Or, and most concerningly, are we not bouncing back as well as we expected?
Depending on your view, there are a few different ways to invest for this conundrum.
*Source: IFactory, January 2017 – google was first used as a verb on Buffy the Vampire Slayer in 2002, but was not added to the Oxford English Dictionary until 2006.
**Source: Google Finance
***Source: Wendover: Airlines’ Business Travel Problem
^Source: Condor Ferries, Business Travel Statistics 2020