Zoom shares slide 11 per cent as growth tapers off

Shares of Zoom (ZM.O) slid more than 11 per cent in premarket trading on Tuesday, after the video conferencing company signaled a faster-than-expected drop in demand and analysts questioned its future plans as people return to office.

Zoom and other video conferencing services such as Cisco (CSCO.O), Microsoft’s (MSFT.O) Teams and Salesforce’s (CRM.N) Slack raked in millions of new users as the pandemic forced people to work, study and communicate with friends and family remotely.

With easing pandemic curbs, Zoom will need to find new avenues for growth. The company already made a $14.7 billion bet on Five9 in July to bolster its contact center business.

Analysts said it would take a few quarters for Zoom to return to its true underlying growth rate.

“There are significant questions outstanding regarding how new customer demand and customer churn rates will stabilize in the core business following the loosening of COVID-19 restrictions,” analysts at Daiwa Capital wrote in a note.

Zoom forecast current-quarter revenue between $1.015 billion and $1.020 billion on Monday, indicating a rise of about 31 per cent, compared with multiple-fold growth rates in 2020.

At least four brokerages cut their price targets on Zoom, according to Refinitiv data, with Piper Sandler being the most bearish – slashing its price target by over $100 to $369.

Shares of the company were set for their worst day in almost nine months as they fell to $307.5 in premarket trading.

The company’s shares rallied to stratospheric highs since February last year, with its valuation touching $175 billion in October. Since then, the shares have eased and if current premarket losses hold, Zoom’s capitalization will be nearly half of the October peak.