Zoom Shares Sink 15% After ‘Concerning’ Earnings Miss, Analysts Downgrade The Stock

Topline

Shares of video conferencing service Zoom, one of 2020’s pandemic-era stock market darlings, have continued to struggle this year, plunging 15% on Tuesday after several Wall Street analysts downgraded the stock amid concerns that the company faces slowing revenue growth.

Zoom’s success has been “overshadowed” by a decline in profitability and cash flow, analysts warn.

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Key Facts

A day after reporting quarterly earnings that underwhelmed investors, Zoom’s stock fell over 15% to under $82 per share, adding to already significant losses so far this year.

The video conferencing platform missed on revenue, which came in at $1.10 billion—short of the $1.12 analysts were hoping for.

Revenue grew at an annual rate of 8%, but slowed from 12% in the previous quarter, while net income fell to $45.7 million compared to nearly $317 million a year ago as the company spent more on sales and marketing.

Management cited the negative impact of a strong U.S. dollar on revenue in the most recent quarter, while executives also warned of “macro dynamics” and challenging economic conditions as the company slashed its financial outlook for the rest of the year.

BTIG analysts on Tuesday downgraded shares of the video platform to a “neutral” from a “buy” rating, warning that the recent pullback in profitability and cash flow is “somewhat concerning as topline growth slows further.”

Analysts at Citi similarly slashed their outlook for Zoom shares to a sell rating from neutral as the company faces increased competition, while also warning about economic pressures on small and medium-sized businesses who use the product.

Surprising Fact:

Zoom is among the worst-performing stocks in the tech-heavy Nasdaq Composite index, which is down 21% this year in comparison. Other pandemic-era darlings—such as Peloton, Teladoc and Roku—have similarly struggled, all losing more than 60% so far in 2022.

Key Background:

After surging over 400% in 2020 as business turned to video conferencing services during stay-at-home mandates amid the pandemic, Zoom’s stock has since struggled, falling roughly 45% in 2021 and now down more than 55% so far in 2022.

What To Watch For:

The company has seen “ongoing success” in its Enterprise business segment—with over 204,000 customers, which is up 18% from last year, BTIG analysts point out. But that progress has been “overshadowed” by high-single digit declines in the company’s online business, as well as “continued pressure” in emerging markets, the analysts led by Matt VanVliet wrote on Tuesday. Given the uncertain economic climate, the firm is warning that the stock could struggle further amid Zoom’s “significantly reduced near-term expectations.”

Big Number: Nearly $700 Million

That’s how much Zoom founder Eric Yuan’s fortune declined on Tuesday as shares of his video conferencing company fell. Yuan’s net worth now sits at $4.5 billion, down from a peak of nearly $15 billion last year, according to Forbes’ calculations.