Zoom Video is customers drop off the service as in-person activities increase.
Courtesy of Zoom
The reality of going back to the office after Labor Day hit Zoom Video Communications hard Tuesday.
Shares of Zoom Video (ticker: ZM) stock fell 16.4% to $290.51 in afternoon trading and were on track to end the session with their largest percentage decrease since Nov. 9, when shares fell 17%.
The stock has struggled this year—off 13%, compared with the S&P 500 Index’s 21% gain—as vaccination programs ramped up worldwide, and businesses reopened or set return dates for their workers—many in early September to coincide with the start of the school. And from last fall, when the share price set a record high of $568.34, the stock has retreated 49%.
Still, Zoom Video delivered a big number after the closing bell Monday when it posted quarterly revenue for the first time of over $1 billion.
But what caught investors off guard was the company’s guidance, suggesting that revenue would be sequentially flat for the next two quarters.
And, on the conference call, executives delivered another sobering example of emerging from the pandemic: Customers are dropping off the service more frequently as in-person activities increase.
In a research note, BofA Securities analyst Brad Sills acknowledged that Zoom Video’s outlook for the second half of the year was “soft” because fewer small and midsize businesses are using the company’s products. But he pointed out that the growth of Zoom Phone was a positive sign. Company executives put Zoom Phone customers at more than 2 million. Sills rates shares a Buy with a target price of $385.
J.P. Morgan analyst Sterling Auty had a less charitable assessment, and rates the stock a Neutral with a target price of $385. In a note, Auty wrote that Zoom Video’s second-quarter revenue had the smallest upside since the pandemic began, with the full-year guidance suggesting even less upside than the quarter.
“Listen, we still believe Zoom is a very good franchise with a tremendous amount of growth in its future,” Auty wrote, “but we expect the market will need to rationalize a different level of growth postpandemic into their valuation expectations.”
RBC Capital Markets analyst Rishi Jaluria took a different view. In a note, he called Tuesday’s decline a buying opportunity for investors, who can take advantage of the debate over the company’s postpandemic valuation as a way to own a platform that is expanding into something broad. Zoom Video, he wrote, will continue to grow, and look much more favorable as it leaves behind the difficult comparisons from its explosive Covid-19 pandemic growth.
Of the analysts covering Zoom Video, 14 rate shares a Buy, and 10 rate the company a Hold, and two have a Sell rating. The average target price is $370.05.
Write to Max A. Cherney at [email protected]
