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What we get right, and wrong, with our Company of the Year

·Senior Columnist
·4-min read
In this article:
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  • GOOG
  • GOOGL
  • ^IXIC
  • ZM
  • MSFT
  • AAPL
  • SQ

Zoom Video Communications (ZM) broke a 7-year winning streak in 2021. Before Zoom, every business Yahoo Finance selected for Company of the Year delivered a positive stock return during the following 12 months. All but once, those stocks outperformed the S&P 500. Zoom shares, however, have fallen 46% so far this year, the first losing performance since Disney was our debut Company of the Year in 2013.

We’re not apologizing—and we doubt Zoom investors are complaining, either. Zoom was our 2020 honoree because it defined the coronavirus pandemic, from the isolation of self-quarantine to the innovations of remote everything. Zoom also had monster returns in 2020, when the stock rose 396%. Even with this year’s 46% decline, Zoom shares are still up 165% since the beginning of 2020. With the omicron variant now threatening a Covid revival, Zoom remains part of our everyday lives.

Our 2021 Company of the Year, Microsoft, is a Goliath compared with the upstart Zoom. Other stocks—Crocs, Macy’s, Dick’s, Ford—posted higher returns this year. Meme stocks such as GameStop and AMC demonstrated the newfound power of retail traders bucking Wall Street. Moderna and Pfizer paved a path out of the pandemic with their vaccines. Yet Microsoft (MSFT) posted a gargantuan $176 billion in revenue for the last 12 months, ending in September—a 20% annual increase. Its profits were an astounding $68 billion, up 39%. As our tech reporter Dan Howley explains, Microsoft mints cash from its dominant software and gaming businesses, while thriving in new areas such as cloud computing, networking apps and social media.

Teacher Using Zoom on Laptop Computer to Teach At-Home Students, Wellsville, New York. (Photo by: Barrie Fanton/Education Images/Universal Images Group via Getty Images)
Teacher Using Zoom on Laptop Computer to Teach At-Home Students, Wellsville, New York. (Photo by: Barrie Fanton/Education Images/Universal Images Group via Getty Images)

Oh yeah—Microsoft’s stock also rose 45% so far this year, roughly double the return of both the S&P 500 and the tech-heavy Nasdaq index (^IXIC). The tech giant’s market value hit $2.5 trillion in November, more than Alphabet (GOOG) and just a shade less than Apple (AAPL). Microsoft is 46 years old, yet posting gains more typical of a startup. We don’t know what Microsoft’s stock will do next year, but we do know it’s impressive when a stalwart in any industry can reinvent itself and repeatedly sniff out the direction of the future.

[Read more: Microsoft is Yahoo Finance’s Company of the Year 2021]

A pandemic trade

Our annual best company picks are not stock recommendations. We consider financial performance when evaluating hundreds of companies each year, but also weigh qualitative factors such as leadership, cultural relevance and longevity. Each year we also look back to see how our prior picks performed afterward. Our record is solid but not perfect.

On average, our picks have outperformed the S&P 500 by nearly 9% during the first year after we designated them Company of the Year. Square (SQ), our 2018 pick, underperformed the following year, 2019. But it went on a tear in 2020, due to rapid adoption of its Cash App mobile payment service and a move into bitcoin, two new business lines we highlighted in our 2018 profile. Square’s stock rose a modest 12% in 2019, but it soared by 248% in 2020.

We sensed that Zoom shares could drop as we prepared our 2020 profile of the company. Zoom was an obvious pandemic trade, and it only made sense the trade would fade as vaccines rolled out and the pandemic receded. Zoom shares peaked in October 2020, and were down about 25% from that high when we locked it in as our best company choice for 2020. That was okay; it didn’t diminish an extraordinary story.

Facebook (FB) – now called Meta – our 2015 winner, probably couldn’t make the cut today, no matter how strong its financial performance. Facebook has become too controversial—and a pariah to some—for the fetid disinformation it seems unable to purge from its platform. It also seems too competitive—if there can be such a thing—in its efforts to snag the attention of teenagers and children, before anybody else. Those issues weren’t on our radar in 2015.

BERLIN, GERMANY - FEBRUARY 27: CEO of Microsoft Satya Nadella and CEO of Volkswagen, Herbert Diess (not seen) attend a session during their visit to Volkswagen Digital Lab in Berlin, Germany on February 27, 2019. (Photo by Abdulhamid Hosbas/Anadolu Agency/Getty Images)
CEO of Microsoft Satya Nadella and CEO of Volkswagen, Herbert Diess (not seen) attend a session during their visit to Volkswagen Digital Lab in Berlin, Germany on February 27, 2019. (Photo by Abdulhamid Hosbas/Anadolu Agency/Getty Images)

In last year’s profile of Zoom, we speculated that a larger company might want to buy it at some point. That didn’t happen in 2020, perhaps because Zoom, with a market value of $54 billion, is still pricey. If there ever is a deal, however, Microsoft could be the buyer. That would mark another first: the marriage of two Yahoo Finance Companies of the Year.

Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.

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