Covid stock boom for Peloton and Zoom a result of 'lazy investing,' says NYU's 'dean of valuation'

Published Thu, Dec 3 20206:55 PM EST

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

(This story is for CNBC Pro subscribers only.) New York University finance professor Aswath Damodaran told CNBC on Thursday he believes the coronavirus-fueled surge in the stocks of Zoom Video and Peloton have pushed their valuations way too high. "I think very early in the pandemic, Zoom and Peloton to me became the symbols of lazy investing — lazy investing in the sense of, 'Hey, I want to take advantage of the pandemic. Let me pick the companies that I think will benefit,'" Damodaran, known as the "dean of valuation" for his company analyses, said on "Fast Money." "And guess what people zoomed in on? What they were working on everyday, Zoom, and the fact that Peloton was benefiting" from closed gyms and stay-at-home orders, he added. Damodaran said those two companies have been helped tremendously by the pandemic, attracting scores of new users and boosting revenue. However, their valuations have run too high, too soon, he contended. Shares of Zoom are up more than 500% so far in 2020, putting its market capitalization at $117.6 billion as of Thursday's close. "Don't get me wrong. I love Zoom as a company. They've got the perfect platform for this virus, but at the same time, I think the market cap has run way ahead of what the company can actually deliver in terms of revenues, especially after we go back to work," Damodaran said. "I think some people will stay on Zoom," he said. "I think the story is still much bigger than it was before the virus hit, but I can't see it being big enough to justify the prices we're paying for this company." He also noted some of its chief rivals in the videoconferencing space are Microsoft , with its Teams platform, as well as Cisco and its Webex offering. Both are "big players with deep pockets," he said. "Neither player is going away." "For me, the problem for Zoom is even if the market for online meetings, teaching, is much bigger, it's going to face a lot more competition going forward, and that's something that I don't think has been priced in right," he said. Peloton's stock is up just over 300% year to date, pushing its market cap to $34 billion. For Damodaran, the pandemic has changed the way he views Peloton as a company, elevating its digital fitness subscriptions to a more prominent role. "When I originally valued Peloton in September of 2019, I valued it as a luxury fitness equipment company with a subscription business on the side. Today, I value Peloton as a subscription business with a fitness equipment business on the side, and I think it is going to succeed at that," he said. For that reason, he said Peloton's value as a company deserves to be higher than it was when the year began. However, he said he struggles with the prices that investors are paying up for the stock now. "I mean right now they're charging $13 a month for the subscription," Damodaran said, referencing Peloton's digital membership that costs $12.99 . "You pay $16 a month for Netflix. On a relative basis, that seems to be a pretty expensive subscription for a fitness app, and that's something I think is going to come under pressure as well once we stop staying at home and we start looking at options."

Peloton Interactive Inc. stationary bicycles sit on display at the company's showroom on Madison Avenue in New York, U.S., on Wednesday, Dec. 18, 2019.

Jeenah Moon | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

New York University finance professor Aswath Damodaran told CNBC on Thursday he believes the coronavirus-fueled surge in the stocks of Zoom Video and Peloton have pushed their valuations way too high.

"I think very early in the pandemic, Zoom and Peloton to me became the symbols of lazy investing — lazy investing in the sense of, 'Hey, I want to take advantage of the pandemic. Let me pick the companies that I think will benefit,'" Damodaran, known as the "dean of valuation" for his company analyses, said on "Fast Money."