Technology Newsround – Zoom, Cars & AR

Zoom – Hybrid work.

• Zoom reported good results as pandemic customers are sticking with the service which allowed the company to raise its estimates resulting in a valuation that is no longer particularly challenging.
• Revenues for 2023 will now be $4.47bn – $4.49bn and EPS $4.25 – $4.31 up marginally from its previous forecasts.
• What is remarkable here is that Teams is not making more of a dent as it comes free with an Office 365 subscription.
• Teams is also good enough for all practical purposes meaning that millions of users such as RFM no longer need Zoom.
• At the consensus estimate, Zoom is on 17x 2023 PER which is not unreasonable, but I am uncertain as to where future growth is going to come from.
• In the quarter just gone enterprise customers increased by 9% YoY to 215,900 but revenues grew by just 1% YoY.
• Zoom needs to find another source of revenue growth and also to convince sceptics (like me) that Microsoft will not eventually eat its lunch.
• The valuation is not challenging but growth is uncertain and there are much more interesting opportunities available elsewhere.

Automotive software – Migraine from hell.

• The automotive industry’s inability to deal with software is causing havoc everywhere and is beginning to cost car companies revenues that they can ill afford to lose.
• The casualty list is long.
• VW, Rivian, Polestar, Fisker and now Volvo have all delayed model launches because they have been unable to get software ready in time and I am sure there will be many more.
• The problem is that RFM research has concluded that vehicle software is at least 5x more complicated than a regular consumer device and is also constrained by safety and reliability requirements.
• This makes the job of creating a single consistent platform for a line or brand of vehicles very challenging.
• This is leading to much of the industry running around in circles leaving the door open for Google which has been doing much better recently in its quest to turn cars into Android handsets.
• While this acts as a cure for the immediate headache, RFM research indicates that the vast majority of the benefits of digital services in the vehicle will accrue to Google and not the car maker.
• In the long-term losing control of the software in the vehicle is likely to mean losing almost all of the opportunity to monetise the vast addressable market that will evolve over the next 20 years.
• RFM has written extensively on this subject and the latest version can be found here

Magic Leap & Meta Platforms – one of many

• It appears that Meta Platforms and Magic Leap are in negotiations around a cooperation that could see Magic Leap provide IP or white-label devices to Meta Platforms as part of its Metaverse strategy.
• Magic Leap has recently released the second version of its product which has improvements both in terms of visual capability but also processing power.
• RFM believes that if the Metaverse is to replace the smartphone as the centre of users’ digital lives, it will need to be in the form of augmented reality.
• This is where the virtual world is superimposed on top of the real world which the user perceives through a pair of ordinary glasses.
• Meta Platforms has yet to produce anything really meaningful in this space despite being by far the global leader in virtual reality.
• AR is much harder than virtual reality and so it is quite possible that Meta will look to source technology from outside Reality Labs.
• Hence, I suspect that Meta Platforms is speaking to many players including the increasing number of Chinese companies masquerading as US companies who are offering impressive improvements in the visual quality on transparent viewing surfaces.
• Hence, there is no guarantee that Meta Platforms will pick Magic Leap as a partner as there are plenty of other technically competent options to choose from.