Zoom Video Communications (ZM) experienced a significant surge in share price on Thursday, rallying almost 13% following the release of its positive quarterly earnings. This rise in the stock came amidst a surprising turn of events as Cathie Wood’s Ark Invest, renowned for its investments in disruptive technology companies, decided to completely divest its holdings in Zoom. This move has sparked curiosity about Ark Invest’s investment rationale and its implications for the future trajectory of Zoom’s stock.
Zoom, often considered a beneficiary of the COVID-19 pandemic, was a cornerstone investment in Ark Invest’s flagship Ark Innovation ETF (ARKK). At its peak, Zoom constituted approximately 11% of the fund’s portfolio, according to industry observers. However, Ark Invest’s trading disclosures revealed that the firm sold off its entire 424 shares of Zoom in ARKK, effectively reducing the stock’s representation to a negligible 0.0004% of the ETF’s holdings. As of Friday, Zoom was entirely absent from ARKK’s portfolio.
While Ark Invest has completely exited Zoom from ARKK, it retains a minimal stake in the company through its ARK Next Generation Internet ETF (ARKW), currently holding just 194 shares. Interestingly, this move echoes Ark Invest’s decision to sell off its entire holding in Nvidia Corp. (NVDA) early in 2023, just before the stock began its remarkable climb driven by the surging popularity of artificial intelligence.
Zoom’s journey began with its initial public offering (IPO) in April 2019, where it raised $360 million. The stock soared on its debut, closing at $62 compared to its IPO price of $36. The initial post-IPO surge propelled the stock to a high of $104.49 in July 2019, but the momentum eventually waned, leading to a retracement of almost all its gains before the pandemic struck.
The global lockdowns and work-from-home mandates brought about by the COVID-19 pandemic acted as a catalyst for Zoom, propelling its stock to an all-time peak of nearly $600 in October 2020. However, since then, Zoom has lost much of its sheen, failing to maintain its outperformance against the broader market and the technology sector. This decline in Zoom’s performance prompted Ark Invest to release a valuation framework in June 2022, projecting a stock price of $1,500 by 2026.
Following Ark Invest’s decision to dispose of its Zoom holdings, YouTuber Joseph Carlson drew attention to comments made by CNBC Mad Money host Jim Cramer back in February 2022, regarding Cathie Wood’s investment strategy. Cramer questioned Wood’s investment choices, stating that she seemed to buy without proper research and analysis. Cramer noted that fund management involves a meticulous process of research, security analysis, and price determination, which seemed to be absent in Wood’s approach.
Ark Innovation ETF (ARKK) closed Thursday’s trading session down 2.98% at $44.25, significantly lower than its peak of nearly $160 reached in early 2021. ARKK has experienced a decline of over 15% this year, contrasting sharply with the S&P 500 Index, which has surged almost 17%. Despite this downturn, Zoom Video saw a significant jump of 12.97% to $68.04 on Thursday.