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|ZM||ZOOM VIDEO COMMUNICATIONS INC.||527.09||+9.30||+1.80%|
The stock had surged to a record high in March as demand for the app skyrocketed with millions of people around the world using it for everything from school lessons to business meetings amid lockdowns imposed to slow the spread of the coronavirus.
But multiple reports last week that questioned the company’s data privacy practices have spooked investors, which led to the loss of a third of the company’s market value from its record high.
The stock was last down 7.9 percent at $118.05 on Monday morning and it was among the worst-performing stocks on the Nasdaq.
Brokerage Credit Suisse downgraded Zoom Video Communications’s stock to “underperform” from “neutral." Analysts on average rate the stock “hold," according to Refinitiv data.
“While implied new customer growth may seem undemanding compared to recently disclosed 20x participant growth, we expect much of the recent surge will prove ephemeral, and/or comes from free users or education, which are very difficult to monetize,” Credit Suisse analysts wrote in a note.
Last week, at least two U.S. state attorneys general sought information from Zoom after reports that questioned its privacy and security.
Some school districts in the United States have started to ban the app for online lessons because of growing security concerns, and the New York City Department of Education said teachers should work through Microsoft Teams, Washington Post reported on Saturday.
Reuters also reported last week that Elon Musk’s rocket company, SpaceX, banned its employees from using Zoom because of significant privacy and security concerns.
While analysts believe that many issues, especially those originating from user error, are likely to get solved in the short term, others could remain for some time.
“Encryption concerns have already caused some high profile customers to curtail Zoom usage, and we expect others could follow though the majority of organizations likely have no issue,” Credit Suisse analysts said.
The company’s daily users ballooned to more than 200 million in March from a previous maximum total of 10 million, Chief Executive Officer Eric Yuan said last week.
Microsoft’s Teams, which competes with Zoom, had 44 million users globally as of March 18, Microsoft said last month, more than double the 20 million daily active users it reported in November.