I invest in both companies.

I see solid fundamentals and strength in both businesses.

It is important to remember that the growth is still early in markets that are still evolving. Evaluating these companies based on traditional valuation metrics is problematic because these industries are far less static than other sectors. Both have bright futures, but Zoom would have a slight edge if I had to choose the better long-term investment based on a risk and reward estimation. This suggests a potential for high returns, inspiring optimism in potential investors.

Zooming in: Misunderstood as a one-product company:

Company	Revenue (Billions)	Gross Profit (Billions)	Earnings (Millions)
Palantir	2.23	1.8	209.8
Zoom	4.53	3.5	637.5

1. Core Functionality & Additional Services:

• Zoom offers foundational features like video conferencing (Meetings), chat, and phone calls.
• But on top of that, they provide additional services built around this core functionality like:
  • Rooms – dedicated video conferencing hardware for meeting spaces.
  • Events – hosting large-scale virtual events.
  • Contact Center – cloud-based call center solutions.

2. Openness and Integrations:

• A key feature of platforms is openness. Zoom offers a Developer Platform (https://developers.zoom.us/docs/), allowing third-party developers to create custom applications that integrate with Zoom’s core services.
• This extends Zoom’s functionality and caters to specific user needs. Imagine a Zoom app for scheduling meetings directly from your calendar.

3. Diverse User Base and Use Cases:

• Zoom caters to a wide range of users, from individuals to large enterprises.
• The platform’s flexibility allows it to be used for various purposes, such as business meetings, virtual classrooms, telehealth appointments, and even social gatherings.

In essence, Zoom provides a foundational communication platform and allows users and developers to build upon it to create customized experiences. This is a core difference from a product company that offers a fixed set of features.

Zoom has a larger TAM and a much easier pathway toward highly profitable growth.

According to the most recent reports, Zoom boasts 191,000 enterprise customers. While the exact number might fluctuate, Palantir has several hundred enterprise customers (1,300-1,500), significantly less than Zoom’s reported customer count.

Palantir primarily targets large enterprises, providing software platforms for data integration and analysis, often with over 10,000 employees and significant revenue. Zoom has a much broader customer base with businesses of all sizes.

One company targets a niche market of government agencies and large corporations with specific complex enterprise software solutions. The other offers a communication and collaboration solutions platform to businesses of all sizes, with its bread and butter being video conferencing.

Zoom is available in the Education, Financial Services, Government, Healthcare, Manufacturing, and retail industries. Palantir targets many of the same sectors; however, its platform is bulkier and has no actual application use for smaller enterprise businesses. Palantir’s software is generally considered expensive, with some estimates suggesting hundreds of thousands or even millions of dollars per year. Zoom offers a freemium model with tiered pricing plans, different features, and user capacities for businesses and government agencies.

A significant market opportunity ahead with an exceptional product:

Zoom saw 325.81% revenue growth in 2021 due to the pandemic. It is safe to say they will never see this type of year-to-year growth again, but it doesn’t need to.

Zoom is riding a consistent growth trend that began long before the pandemic. Work-from-home or Remote Work, whatever you want to call it, is the inevitable increased globalization of work. Fast Company coined the term “Gen Global” For Gen Z, who prefer “work from anywhere” and prioritize travel over education. Young workers grew up on social media and are more comfortable communicating via video conferencing.

Working full-time in the office is a dying trend. The new long-term trend is a form of hybrid work, from which Zoom will likely reap the rewards. As technology improves, the migration from On-Prem to the Cloud continues, and older CEOs phase out, companies will become more receptive to Zoom’s platform. Hybrid work is inevitably the future and growing; companies that resist the trend will lose out on talent, leading to a loss in profits. Zoom’s strategy to capitalize on this trend is to continue improving its platform and expanding its customer base, particularly in the government and healthcare sectors.

Zooms provides cloud-based products that the next generation of workers will use. Meetings offer a better mousetrap for workers and are becoming an essential product for employers to provide as an efficient way to communicate with each other.

• It is popular among most workers who see it as a “perk.”
• Reduced costs for real estate
• Expanded pool of recruitable talent
• Increased worker retention. 
• Adopted over time as hardline proponent CEOs of returning to work retire.

Fundamentals vs. Valuation:

Zoom and Palantir have been public for less than five years, so evaluating past performance based on limited data is difficult. With companies like these, it is more helpful to first zone in on the fundamentals to make an educated guess about the future.

The Artificial Intelligence Platform (AIP) is promising. I am a believer; however, the pathway is far from certain. Palantir’s commercial business is nascent, with even its most ardent supporters having to take a leap of faith that it will grow. Selling a product that companies don’t even know they need is almost impossible to map out five years out.

Palantir has a long sales cycle. Learning its solutions takes much longer because the learning curve is high. It will likely take a year before their platform shows any meaningful ROI.

AIP is intriguing and ambitious. The presentation deck is broad and alluring. It captures an investor’s attention when you help uncover human trafficking rings or battle the Russian army. I have determined the risk is worth the rewards as an investor, but valuing this as an investment is problematic because it assumes high optimism in a new space without a clear track record.

Can Palantir expand its commercial business and attract a broader and more diverse customer list? It is too early to know if the path is certain. A longer track record of low churn and increasing profits is needed to make a better determination.

Zoom’s software has already penetrated multiple enterprises, organizations, and businesses. However, its platform still has a lot of room to grow. Many analysts dismiss Zoom’s government business, which is largely untapped, more so than Palantir. 

Another lockdown may not happen again, but the residual effects of the lockdown are seeing permanent work behavioral changes despite the pandemic being over:

Columbia University went fully remote due to Palestinian protests.

School districts in many U.S. cities went remote during the winter due to the flu/Covid outbreak.

Flu/Covid outbreaks will continue in the future.

Someone even had a Zoom court hearing while driving with a suspended license.

For a platform critics say is dying, people still use it daily. Zoom’s client list ranges from news broadcasts to hospitals, school districts, colleges, and courts. Its partnership with MLB is one of the best case studies of how Zoom’s suite of products can provide a large, multifaceted enterprise with various solutions.

The two biggest fundamental questions that I will be closely watching for the near future:

(1) Leadership execution, mainly if they can make intelligent acquisitions of smaller technology companies to complement and grow their existing businesses. Zoom has a large cash pile and will likely search for an acquisition target to grow its business.

(2) Increased sales and marketing. The CEO & Founder, Eric Yuan, acknowledged this on a previous earnings call: “One thing I think we did not do well, as I mentioned even before, is we did not do well on the marketing front. A lot of customers and users do not know Zoom has a greater presence in Team Chat functionality at no additional cost. And it works extremely well.”

Yuan has proven he can make great products, but Zoom must enter wartime sales mode. Zoom must ramp up S&M spending and sacrifice profits for growth. Zoom has a significant edge over Palantir because it has far more brand recognition. Conceptually, learning how Zoom’s products can help a business is easy. Practically, there is a low learning curve, with Meetings & Chat being extremely user-friendly. Foundry is a much more challenging platform to use and understand. Palantir would need to make Foundry less heavy to address many lukewarm and bad reviews. It’s an early and fixable problem but a potential red flag for future growth.

Both companies have potential opportunities, but Zoom has a bigger total addressable market. Despite the pandemic being over and Zoom becoming a target for other companies to criticize, Zoom’s platform is already becoming a mainstay in the enterprise ecosystem. The story is still early for its commercial and government businesses.

Low vs High Expectations and Sentiment

From a Price-to-Earnings Ratio and other traditional financial metrics, Palantir is an expensive stock. Is it overvalued? That depends on whether it can meet or exceed high expectations. Zoom is the opposite, an inexpensive stock with low expectations.

In the short term, Zoom has a low bar to jump. Analysts would view 5-10% YoY growth in 2025 as wildly optimistic and likely cause the stock price to double from today’s price. For Palantir, anything under 25%-plus overall growth would be disappointing and likely not well-received from Wall Street.

A company with high expectations can exceed them, but Zoom likely has better odds of meeting its target projections.

So why mention expectations? I discuss this to reflect the nuisance of investing and how to become a better, well-rounded investor. Suppose you are an investor and only consider the company’s qualitative aspects. That strategy probably works out in the long term, but you must ask yourself: Is there a compelling reason to buy the stock where it trades today? The better-discounted price you get, the more likely you have a higher return.

Analyst ratings for both companies are pretty tepid. Remember, Palantir traded above 35 in early 2021, and Zoom traded above 555 in 2020. Many bitter retail and institutional investors are underwater on their investments if they are still holding, but this is where the behavioral aspect of investing plays a factor. The mood of the market and macro environment was completely different during the pandemic than today.

The past is the past. An investor cannot change the price at which you bought the stock last year or five years ago. The company’s valuation is different, but if you are down 30-80% on your Zoom or Palantir shares, it doesn’t mean the company is 30-80% worse. Palantir has seen significant growth in its commercial business. Zoom is a high-quality company trading at a rare reasonable valuation with solid fundamentals. Zoom has yet to see its revenue decline, which likely would have happened if its platform was a pandemic fade. The low sentiment has manifested skepticism about the viability and feasibility of the Zoom platform. This creates a potential opportunity for patient longs who do not care about the lack of momentum. Shares for both companies are not overbought according to the relative strength indicator (RSI), a momentum-oriented technical analysis tool.

Final Thoughts:

Both of these companies have compelling evaluations. They meet the criteria for quality companies. I give the edge to Zoom because it trades more at a discount. Both companies have an opportunity because their balance sheets look healthy, and their cash flow is growing steadily.

I may seem down on Palantir, but as I said earlier, I invest in both companies. Although it looks fairly valued today, Palantir is not an overhyped AI company. I could be underestimating its fundamentals, meaning it is grossly undervalued today.

I love the fundamentals, but valuation matters. Can you ignore the possibility of an economic slowdown, a hiccup, or a U-turn in sentiment or the story’s narrative? Can you invest successfully, ignoring risk and assuming a large meteoric rise based on already-priced assumptions? I don’t have enough conviction to go all in on one name, but I do have enough of a risk appetite to stay on the ride and let it play out. Zoom’s sentiment today is low, and all the momentum it had during 2020 and 2021 seems to have evaporated. Although not dirt-cheap, Zoom appears like an inexpensive stock with better odds of overperforming.