The video conferencing firm Zoom Video Communications (ZM) achieved significant progress throughout the pandemic, but with the reopening of corporate headquarters and other offices, the company is unable to continue at the same growth pace.
As a result, the stock has taken a huge turn for the worst, down roughly 52% in the last year and about 43% year-to-date.
On November 22, Zoom announced better-than-expected third-quarter results. Revenues increased by 35% year-over-year, while adjusted earnings per share increased by 12%.
Despite the positive findings, the stock dropped 14.7% of its value, closing at $206.64 on Tuesday.
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What Happened to Zoom?
Fears of diminishing growth prospects appear to be weighing on Zoom’s stock price. The company’s top and bottom lines both grew, but at a slower rate than in the previous quarter.
Investors were concerned about the company’s inability to build its enterprise customer base at a rapid rate. Notably, Zoom had about 512,100 customers (with more than 10 workers) at the end of Q3, an increase of 18% compared to the 36% seen in Q2. That means growth slowed by half, quarter-over-quarter.
Furthermore, many investors were unimpressed by management’s guidance. Revenues are expected to be flat in Q4 compared to Q3, and profitability will be down somewhat from Q3 levels.
The company’s Q3 figures clearly reveal that Zoom is unable to sustain its 2020 growth rate, and as a result, the stock’s performance appears to have disappointed shareholders.
What’s Next for Zoom?
Zoom has been attempting to entice huge businesses with its new offerings. For example, the firm introduced additional products such as the Events platform for big corporate meetings, the Zoom Phone cloud-calling service, and Zoom Rooms for in-office meetings, all aimed at expanding the company’s customer base.
Zoom’s CEO, Eric S. Yuan, also appears to be upbeat about the company’s future prospects.
Yuan said in its Q3 conference call, “We are well on our way to becoming an indispensable platform for enterprises, individuals, and developers to connect, collaborate, and build in the flexible hybrid world of work. We believe our global brand, innovative technologies, and large customer base position us well for the future.”
As the hybrid work culture is expected to persist indefinitely, these new offerings should aid Zoom in increasing traffic in the foreseeable future.
Improved Website Traffic
Interestingly, we used TipRanks’ new Website Traffic tool, which gets its data from Semrush, to verify the company’s website traffic numbers (SEMR).
In the third quarter, we noticed that unique user visits to Zoom’s website climbed by around 1%. This period, however, was defined by declining stock prices, which fell by 27.4%.
According to data, Zoom is recovering traction and garnering more visitors to its website. However, as seen by the share price decline, the tailwinds that Zoom profited from during the lockdowns last year have started to fade.
Wall Street Cautiously Optimistic
Despite the fact that the company’s performance exceeded expectations on both the top and bottom lines, the majority of analysts reduced their price targets for Zoom stock on slowing growth.
On such analyst, Parker Lane of Stifel Nicolaus, maintained his Hold rating on Zoom but decreased the price target to $275 from $300.
Lane believes the firm is well-positioned to grow its present client connections and evolve into something more than just a meeting platform. He also showed his belief in the company’s new offerings and mentioned that products like Video Engagement Center, Zoom Chat, Zoom Apps, and Zoom Events, can help mitigate some of the Meetings volume reduction.
Turning to Wall Street, the analyst consensus is cautiously optimistic on Zoom, with a Moderate Buy consensus rating, based on 11 Buys and 12 Holds. As for the price target, the average Zoom Video price target of $311.29 implies 50.6% upside potential to current levels.
Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.
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