Zoom shares plunge as company faces big growth issues in 2022
$Zoom Video Communications(ZM.US$ might have been the poster child for tech companies that saw business boom during the Covid-19 pandemic as millions of employees worldwide fled their offices and began working at home. And that need for reliable communications technology in order for people to do their jobs drove demand for Zoom's (ZM) services so much that on Oct. 19, 2020, the company's stock price hit an all-time high close of $568.34 a share.
What a difference a year makes.
On Tuesday, Zoom's (ZM) shares plunged more than 16%, to around $200 a share. At that price, Zoom's market cap of $59.6 billion has fallen by approximately $77 billion over the past 13 months.
Zoom (ZM) suffered from a case of the company not being able to win for losing. The issue was Zoom (ZM) forecasting more growth ahead, but not at the levels that have driven its business over much of the last two years.
The company said that for its current, fiscal fourth quarter, it expects revenue to grow just 19% over the same period a year ago, to between $1.051 billion $1.053 billion. That growth forecast looks even more striking when noting that it is barely higher than the $1.051 billion Zoom (ZM) reported for its third quarter, which was 35% higher than year-ago period.
It's no surprise what's behind Zoom's (ZM) growth issues. More companies are planning on having their employees returning to the office on at least a part-time basis in early 2022. This could, in theory, result in less usage of Zoom's (ZM) video services since workers would be meeting more often in person. Just last week, Apple (NASDAQ:AAPL) said its employees would begin coming back to company offices starting Feb. 1.
Speaking on a conference call on Monday, Zoom Chief Financial Officer Kelly Steckelberg acknowledged some of the issues the company expects to face in the coming year.
"We're still having these online customers which are the most volatile [and] many of them are still on monthly contracts," Steckelberg said. "And as they are adjusting to the environment and figuring out how the future of work is going to be for them individually, We expect that to be the challenging headwind."
The number, and quality of Zoom's (ZM) customers raised some questions on Wall Street. For example, the company said that for its third quarter, it had 512,000 customers with more than 10 employees, an 18% increase from the third quarter a year ago.
However, Bank Of America Securities analyst Brad Sills noted that number of customers rose just 1% from the second quarter of this year, which Sills said was "a record low" for quarter-over-quarter growth.
Sills cut his rating on Zoom's (ZM) to neutral from buy, saying that "a broader slowdown in both new customer growth and expansion activity, and still heightened online [customer] churn provide little certainty as to the bottom for [customer] growth."
At Wells Fargo, analyst Michael Turrin left his equal weight rating on Zoom's stock unchanged, but cut his price target to $245 a share from $275. Turrin also said that the issues surrounding Zoom's (ZM) growth prospects are likely to linger well into 2022.
"We expect these headwinds to weigh on results over the next several quarters, keeping [Zoom] shares range-bound until clearer signs around what's next for Zoom post [its] hyper growth [to] emerge."
Still, not all views on Zoom (ZM) were completely negative. Mizuho Securities analyst Siti Panigrahi cut his price target on Zoom's stock to $300 a share from $350, but made no change to his buy rating. Panigrahi said that while Zoom's (ZM) post-pandemic growth profile "remains somewhat unclear", the company's Zoom Phone, Zoom Rooms and Video Engagement center "remain integral to hybrid work environments" for the foreseeable future.
"Zoom sees continued growth in enterprise offsetting the online segment amid continued adaptation to hybrid work norms," Panigrahi said. "We continue to expect online to decline as a percentage of revenue amid post-pandemic normalcy and greater enterprise [market] penetration."
In search of a new source of revenue, Zoom (ZM) recently said it would start running ads on its free, basic video service.
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Kieron Morley : I wish I didn't cover. I put the company at a fair value of around $38. All of these tech names that ran up during COVID are going to get crushed.
Spider-Man to moon Kieron Morley: That makes two of us..
Sam White : This was inevitable. Although not as easy to see as say Peloton, Wish etc.
MHfin : Been short over a year, average price $479
2uEaAZ5u1B : Exuberance at it's finest. Not everyone was going to stay locked at home forever. I really don't understand why Wall Street acts like companies are going to grow forever. Not saying Zoom won't grow in the future but the idea that they will continue to grow after the biggest catalyst for video calling in history seems foolish. Plus, now there's stiffer competition, something Wall Street also seems to forget about.
I3kmETh4aA 2uEaAZ5u1B: Couldn't agree more
yo5swZ8f6A 2uEaAZ5u1B: Because Wall Street and the reporting companies always want to give "false" pie-in-the-sky optimistic guidance which they know the investors and the programmed-in stock algorithms will factor in to keep their stock price up.
9eb4qiNAAD : Is Cathie buying the dip here again? LOL
IJMZI1Bry1 9eb4qiNAAD: Cathy is buy high, sell low now
wallstreet wolf 9eb4qiNAAD: She said that she bought a lot of ZM, ROKU and TDOC.
Why the media always give her so much time to BS.....
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