Shares of Zoom Video Communications Inc (ZM.O) plummeted about 90% from their pandemic peak in October 2020 as the once high flying stock failed to shift with the change of trends following COVID.
Its stock price dropped nearly 10% on Tuesday after it cut its annual sales forecast and posted its slowest quarterly growth in two years, prompting at least six brokerages to lower their price targets.
As video-conferencing became popular, the company made a name for itself through business lockdown–services such as Zoom Rooms and Zoom Phone, both of which are meant to suit this sector of the company, are largely in development.
Analysts predict the business will eventually experience an upturn; in the meantime, growth in their staple online division has slowed and competitors such as Microsoft Corp. and Cisco Systems Inc. are eating away at their profits.
“Zoom has a fundamental flaw – it has needed to spend heavily to keep hold of market share. Spending to cling onto, rather than grow, market share is never a good place to be and was a sign of trouble ahead,” Hargreaves Lansdown equity analyst Sophie Lund-Yates said.
In the third quarter, operating expenses surged 56% as product development and marketing expenses increased. Its adjusted operating margin fell to 34.6% from 39.1%.
A lot of firms believe that acquisitions could revitalize the company, but CEO Yuan responded to questions from an investor after the call, saying that scrutiny for deals remains a hindrance for the company.
The game for them is not over, but without acquisitions, it will take them several years to return to higher growth, Needham & Co analyst Ryan Koontz said.