Facebook Stock Versus Zoom Stock: Which is the Better Business?

It’s safe to say that technology companies have been strong lately while the market has rallied off of its March lows. A lot of the sharp uptick for these tech companies has to do with the market’s perception of how little the coronavirus will impact their earnings. Some companies have even benefitted directly from the impact of the health crisis, which has caused bigger contenders to start circling in on their competitive advantage.

Two of the most intriguing tech companies to look at right now are Facebook (NASDAQ:FB) and Zoom (NASDAQ:ZM). Zoom has seen a huge boost in its share price this year with a roughly 100% gain year to date, while Facebook recently reported solid Q1 earnings that suggest the stock was priced with a worst-case scenario valuation. You might be wondering which business is the better add to your portfolio. Let’s take a look at Facebook stock versus Zoom stock below and decide which one is the better investment at the moment.

Zoom Stock: Right Place at the Right Time

If you want to find a company that has benefitted directly from the impact of the coronavirus, look no further than Zoom. As more and more people are forced to work remotely and utilize video conferences to get their jobs done, Zoom’s daily active user numbers have soared. The videoconferencing platform has become a household name that has made dealing with the pandemic a lot easier for many people. However, with a $38 billion-dollar market capitalization on annual revenue estimates of $1 billion, investors should be careful of opening new positions.

Although Zoom has become ubiquitous over the last several months, it’s hard to justify an investment at these prices. They were able to grow from 10 million daily active users to over 200 million in the first few months of 2020, but it remains to be seen if those figures can continue rising. It’s also worth mentioning that we don’t know how many of those users are actually paying for Zoom’s services. Many investors are wondering what will happen to Zoom after the pandemic is under control and people start physically heading back to work.

Zoom also took a dip after negative headlines came out stating that they over-reported their numbers for active daily users. This is in addition to the recent controversy surrounding privacy concerns for the company. The stock might be in for significant downside risk in the near term. With tech giants like Facebook and Google working full steam ahead to create their own versions of videoconference platforms, Zoom stock is far from a safe bet. This is a company with an intriguing business model, but it’s hard to argue for buying shares at the current valuation.

Facebook Stock: A Well-Oiled Tech Machine

If you are trying to decide which is the better business, Facebook or Zoom, it’s easy to determine the clear winner at this time. Facebook is a massive technology company with one of the best balance sheets in the business. Their social media platform and applications like Whatsapp and Instagram are used by millions of people every day. Diversified revenue streams, a loyal user base, and a strong management team are all qualities that investors love to see, and Facebook has them all. With around 1.7 billion daily active users for Facebook’s social media platform, this is a company that won’t be going away any time soon.

Facebook beat both EPS and Revenue estimates when it reported Q1 earnings this week. With huge year-over-year revenue growth of 17.6%, massive growth in Net Income, and management stating that ad revenue seems to have stabilized, you have to like the continued growth prospects of Facebook at this time. It seems that the stock was priced with the worst-case scenario in mind prior to this earnings release.

As we mentioned earlier, the company is launching its own group videoconference application called Messenger Rooms. It will allow up to 50 people to meet virtually for as long as they want, versus Zoom’s free service which provides a 100 person meeting for a maximum of 40 minutes. This move can potentially be a big blow to Zoom and lead to lost market share for them, especially since Facebook already possesses a huge active user base.

Facebook Victorious

Although both Facebook and Zoom have been hot lately, it’s important to understand that they are two very different companies. While Zoom has the potential to keep growing over the next several years, it’s hard to justify adding shares at these prices when you can buy a proven tech giant like Facebook with a much more attractive valuation.