The reality of going back to the office after Labor Day’s hit
Zoom video communication
Shares of Zoom Video (ticker: ZM) fell 16.4% to $290.51 in afternoon trading and were on track to close the session with their biggest percentage drop since Nov. 9, when shares fell 17% .
The stock has struggled this year – up 13%, compared to the 21% gain of the S&P 500 Index – as vaccination programs ramped up worldwide and companies reopened or set return dates for their employees – many in early September to coincide with the start of school. And since last fall, when the stock price hit a record high of $568.34, the stock is down 49%.
Still, Zoom Video delivered a huge number after Monday’s closing bell, when it posted quarterly revenue of more than $1 billion for the first time.
But what caught investors off guard was the company’s guidance, which suggested earnings would be flat for the next two consecutive quarters.
And during the conference call, executives gave another sobering example of how they got out of the pandemic: Customers are more likely to discontinue service as face-to-face activity increases.
In a research note, BofA Securities analyst Brad Sills acknowledged that Zoom Video’s outlook for the second half of the year was “soft” as fewer small and medium-sized businesses are using the company’s products. But he pointed out that Zoom Phone’s growth was a positive sign. Business leaders estimate Zoom Phone customers at more than 2 million. Sills rates share a buy with a $385 target.
JP Morgan analyst Sterling Auty had a less charitable rating and rates the stock as neutral with a price target of $385. In a note, Auty wrote that Zoom Video’s second-quarter revenue had the smallest gain since the start of the pandemic, with the full year outlook suggesting even less upside than the quarter.
“Listen, we still believe that Zoom is a very good franchise with tremendous growth going forward,” wrote Auty, “but we expect the market will have to rationalize a different level of growth after the pandemic in 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 could capitalize on the debate over the company’s post-pandemic valuation as a way to own a platform that expands into something broader. Zoom Video, he wrote, will continue to grow and look much more favorable as it leaves the difficult equations of the explosive Covid-19 pandemic growth behind.
Of the analysts who rate Zoom Video, 14 stocks rate a Buy, 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 firstname.lastname@example.org