Zoom shares down 90% from peak as pandemic boom fades
Zoom's operating expenses surged 56% in the third quarter
Wells Fargo Investment Institute's Scott Wren discusses recession risks and the Fed's handling of inflation.
Shares of Zoom Video Communications Inc have tumbled about 90% from their pandemic peak in October 2020 as the former investor darling struggles to adjust to a post-COVID world.
The stock was down nearly 10% on Tuesday after the company cut its annual sales forecast and posted its slowest quarterly growth, prompting at least six brokerages to cut their price targets.
The company, which became a household name during lockdowns due to the popularity of its video-conferencing tools, is trying to reinvent itself by focusing on businesses, with products such as cloud-calling service Zoom Phone and conference-hosting offering Zoom Rooms.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| ZM | ZOOM COMMUNICATIONS INC. | 88.42 | +1.84 | +2.12% |
Bearish stock financial, bear market chart falling prices down turn from global economic and financial crisis. (istock / iStock)
Analysts, however, say any turnaround in the business is still a few quarters away as growth in its mainstay online unit slows and competition from Microsoft Corp's Teams and Cisco's Webex and Salesforce's. Slack gets intense.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| CSCO | CISCO SYSTEMS INC. | 77.76 | +0.01 | +0.01% |
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| MSFT | MICROSOFT CORP. | 480.84 | +3.11 | +0.65% |
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| CRM | SALESFORCE INC. | 260.90 | +13.28 | +5.36% |
ZOOM VIDEO COMMUNICATIONS STOCK TANKS ON GROWTH CONCERNS
"Zoom has a fundamental flaw - it has needed to spend heavily to keep hold of market share. Spending to cling onto, rather than grow, market share is never a good place to be and was a sign of trouble ahead," Hargreaves Lansdown equity analyst Sophie Lund-Yates said.
The company's operating expenses surged 56% in the third quarter as it spent more on product development and marketing. Its adjusted operating margin shrank to 34.6% from 39.1% a year earlier.
Zoom logo (Reuters)
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Some brokerages believe acquisitions could help revive growth at Zoom, but Chief Executive Eric Yuan said on a post-earnings call that he continued to see heightened deal scrutiny for new business.
"The game is not over for them but without acquisitions this is a multi-year path to returning to higher growth," Needham & Co analyst Ryan Koontz said.