You have 2 investment opportunities:
1. 100% ownership of web-based video conferencing company Zoom Video Communications (Nasdaq: ZM) or
2. 100% ownership of the seven largest airlines in the world based on revenue: Southwest Airlines (NYSE: LUV), Delta Air Lines (NYSE: DAL), United Airlines (Nasdaq: UAL), International Airlines (OTC: ICAGY), Lufthansa (OTC: DLAKY), American Airlines (Nasdaq: AAL) and Air France-KLM (OTC: AFLYY).
Here are a few numbers:
Combined all together, the 7 Airlines generated net income of more than $18 billion in their last full year prior to COVID-19.
Zoom’s pretax net income totaled $26 million for the 12-month fiscal year ending January 31, 2020.
$18 billion-plus for the Airlines against $26 million for Zoom. Zoom generated less than 1% of the net income that the seven airlines did.
Zoom posted a market capitalization in May that was slightly higher ($48 billion) to the combined market capitalization of the 7 airlines ($46 billion).
Mr. Market is telling us that Zoom with $26 million of income is just as valuable as the 7 largest airlines and the combined $18 billion of income they generated in the year prior to the pandemic. The market is taking a very bullish view on Zoom’s ability to grow while the market doesn’t think that the airlines are going to get back to their previous level of earnings anytime soon. In other words, the market says both options are worth virtually the same. This is incredible!
It looks like Zoom is being valued far too optimistically and the airlines too pessimistically. Zoom’s web video meeting conferencing business might be great, but won’t people head back to the office eventually. Will airline travel not recover?
Not sure, if buying the 7 airlines now is the right choice to make, but if a decision between the two alternatives has to be made, buying the 7 airlines and selling Zoom looks like the better choice.
Sven Franssen