Zoom Video Communications Inc (ZM.O), a former investor darling, has seen shares plummet about 90% since October 2020’s pandemic peak. This is as Zoom Video Communications Inc (ZM.O), struggles to adapt to a post COVID world.
On Tuesday, the stock fell nearly 10% after the company reduced its annual sales forecast. It also posted its slowest quarterly growth. This prompted at least six brokerages and their price targets to be lowered.
Due to its popularity with video-conferencing tools, the company became a household name during lockdowns. The company is now trying to reinvent itself by focusing more on businesses. Products such as Zoom Phone, which allows you to cloud-call, and Zoom Rooms, for conference-hosting, are available.
Analysts say that any turnaround in the company is still some quarters away, as growth in its mainstay internet unit slows and there is intense competition from Microsoft Corp’s Teams, Cisco’s Webex, and Salesforce’s Slack (CRM.N).
“Zoom has a fundamental flaw. It has had to spend heavily in order to maintain market share. Sophie Lund-Yates, Hargreaves Lansdown equity analyst, stated that spending to hold onto market share rather than grow it is a sign of trouble ahead.
Operating expenses rose 56% during the third quarter, as the company spent more on product design and marketing. The adjusted operating margin fell to 34.6%, from 39.1% one year ago.
While some brokerages think that Zoom acquisitions can help to revive its growth, Chief Executive Eric Yuan stated on a post-earnings conference call that he continues to see increased deal scrutiny for new business.
Ryan Koontz, Needham & Co analyst, stated that “the game is not over but this is a multiyear path to higher growth.”