Zoom? Also an Options Trade Made
Spruce Point makes a point
Spruce Point: Investment Research report Zoom Communications
Improve capital allocation: Zoom has nearly $7.8 billion of net cash and should generate close to $2 billion a year in free cash flow going forward. While we laud its increased focus on share repurchases, its recent activity pales in comparison to its lower-growth, highly cash-generative peers. We highlight the recent buyback transactions executed by Salesforce and Wix as prime examples of the more aggressive actions Zoom should take. We recommend a $4 billion modified Dutch auction tender as the most shareholder-friendly alternative. In addition, based on our assessment of other technology sector dividend payers, we believe Zoom should initiate a $1/share dividend (1.1% yield). Doing so would signal management’s confidence in the Company’s long-term earnings power, enforce financial discipline, and generate incremental demand for Zoom shares from long-term and income-seeking investors. Our recommended $4 billion share repurchase would be 10% accretive to non-GAAP EPS. In addition, dividend initiations have typically resulted in 3-5% one-day returns, and that excludes the longer-term benefits of incremental investor demand from a new and broader investor base.
The stock has a nice base consolidation. It has also been outperforming the software sector.
In the final phase of the dotcom melt-up, many lagging sectors suddenly sprang to life with bears wiped out and skeptics adopting “if you can’t beat ‘em, join ‘em” mentality.
Conversely, over in semiconductors we have a pure melt-up, squeeze action. Rather get short the reversal than to chase it up.
Comcast dragging XLC down today. Massive topping pattern were this to break $23.50 and fall.
