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Nasdaq Climbs 158 Points on Zoom Growth Hopes, Microsoft's TikTok Talks

By Dan Caplinger – Aug 3, 2020 at 4:37PM

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Investors were happy to start August on an upbeat note.

It's hard to believe in a coronavirus-plagued world, but the Nasdaq Composite (^IXIC 0.25%) is up significantly for the year. Both it and the Nasdaq-100 index have defied the COVID-19 pandemic, instead showing that some companies can find strategies for growth even in the middle of the toughest business environment in generations.

The Nasdaq's gains in 2020 have come from several different corners, but the biggest influence has come from companies that are trying to meet new needs in the wake of the pandemic. Zoom Video Communications (ZM 1.27%) has become an essential service for millions of people, and its stock saw big gains Monday as investors continue to believe that it can grow from its new base. Meanwhile, Microsoft (MSFT -0.44%) made news as it engages in talks to acquire Chinese social media giant TikTok in a controversial yet potentially lucrative deal.

Glass door with TikTok logo on it, and office beyond.

Image source: ByteDance.

Zooming higher again

Shares of Zoom managed to climb 6% on Monday. That wasn't quite good enough for another new record close, but it still showed the optimism that investors in the videoconferencing provider have about its future.

Zoom's stock had taken a brief break from the bullishness pervading Wall Street recently, treading water as investors tried to figure out how much more room the company has to grow. In particular, some naysayers believe that the many new users of Zoom's free service will be just as quick to depart once the COVID-19 crisis ends as they were to join when it began. That's of particular concern on the consumer side, where needs aren't necessarily as critical, and customers are less likely to be willing to pay ongoing subscription fees.

Yet for many, Zoom has demonstrated its value proposition. Intense customer loyalty has existing clients not only sticking with the service but also doubling down on it, adding new features that regularly increase the amount of revenue they pay to Zoom. Moreover, once corporate clients get used to Zoom, switching to a competing service becomes a lot more difficult even if they want to make a move.

Zoom has come a long way in a short time, and bumps in the road are inevitable. For now, though, Zoom isn't letting anything get in the way of its growth. That's good news for shareholders.

Microsoft makes a play

Elsewhere, Microsoft shares climbed 5%. Investors were pleased to see the software giant making what could be a massive strategic move in pursuing Chinese short video service TikTok.

For several days, there's been speculation about whether Microsoft would try to overcome the significant political and business challenges involved in acquiring TikTok's U.S. operations. The privately held service, owned by parent company ByteDance, has had to consider selling off its international businesses in order to avoid the application of a possible ban against the company from U.S. regulators.

Yet the stakes are high. Social media success has eluded the maker of office productivity and operating system software, and even Microsoft's forays into cloud computing have left some investors wishing that the company could keep up with some of its big-tech competitors.

With President Trump being a big critic of TikTok, Microsoft CEO Satya Nadella's decision to consult with the White House before moving forward makes a lot of sense. Now, Microsoft will have a month and a half to try to make a deal, and it'll be interesting to see how much progress it can make under time pressure.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications, long January 2021 $85 calls on Microsoft, and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$236.41 (-0.44%) $-1.04
Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$74.26 (1.27%) $0.93
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,829.50 (0.25%) $26.58

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