Covid Winning Stocks Fail to Find a Floor

Two of the most highlighted stocks associated with Covid-era gains, Peloton Interactive (PTON) and Zoom Video Communications (ZM), are now trading below where they were before the pandemic began.  Both stocks have slumped this year and are building on losses from 2021 as the stay-at-home trade unwound after the pandemic eased. 

Disappointing quarterly earnings results from Peloton and Zoom last week underscored the companies' difficulty in holding on to the robust demand they saw as consumers worked and worked out from home.  Zoom has plunged -86% from its October 2020 peak and is one of the ten biggest percentage losers in the Nasdaq 100 index this year.  Peloton has plummeted more than -90% from its January 2021 record high to an all-time low last month.

The outlook is dim for Peloton Interactive or Zoom Video Communications to recover anytime soon, with analysts still lowering their company revenue estimates.  ACM Funds said, “both stocks went crazy during the stay-at-home era because demand went off charts, and the combination of hype and day traders bidding them up turned them into a bubble.”

Other stay-at-home Covid stocks also have seen sharp reversals from their pandemic-era highs. Netflix (NFLX) and DocuSign (DOCU) are the two biggest Nasdaq 100 losers of the year, slumping in the wake of disappointing earnings results. Aggressive Fed rate hikes to combat inflation have led investors to seek out stocks with consistent growth or that pay dividends and away from companies that aren’t profitable or where fast growth rates are cooling off.

The fundamentals of the Covid-era stay-at-home stocks remain in question, especially for Peloton Interactive, which reported a quarterly loss last Thursday that widened sharply from the prior year.  At the same time, it gave a revenue forecast that was well below consensus.  As a result, MKM Partners warned of “existential issues ahead” for Peloton and said, “with the company projected to lose money for the foreseeable future, it is hard to determine a floor for the stock.” 

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