The Street is unclear on how to value Zoom as its growth slows with people returning to offices and schools, despite the lingering pandemic.
So the only course of action right now it seems — sell Zoom’s stock (ZM) and wait for more stable waters.
“We are wary of a potential demotion for Zoom from hyper-growth to growth at a reasonable price,” said Citi analyst Tyler Radke, following Zoom’s underwhelming second quarter results Monday evening. Radke called the earnings report disappointing.
Zoom saw slowing sequential growth rates in customers spending in excess of $100,000 a year with the company (131% in the second quarter versus 160% in the first quarter) and spending with 10 or more employees (36% growth in the second quarter versus 67% growth in the first quarter).
“I think we were talking about most of us are probably socializing in person now, doing fewer things like Zoom Happy Hours, and that’s where we are starting to see some of the challenges,” acknowledged Zoom CFO Kelly Steckelberg on an earnings call with analysts.
Zoom shares crashed more than 16% to $293 on Tuesday’s session. The steep sell-off pushed shares of Zoom into the red for the past year, down about 2.5%, according to Yahoo Finance Plus data. Over that same span, the S&P 500 has tacked on 20%. The Nasdaq Composite has surged 31%.
Added Steckelberg on the growth slowdown, “When we look out through what we have seen is a slowdown in the online segment of the business, which again, even though the pandemic seems to be far from over, we are happy that people are feeling more comfortable out traveling. And that’s really where we’re seeing the slowdown. And if you back all the way up to when we gave guidance at the beginning of the year, we had expected that towards the end of the year, but it’s just happened a little bit more quickly than we expected. And we, of course, feel good that people are out moving around the world. But It’s certainly creating some headwinds, as we’ve said, in the online segment of our business.”
Analysts are taking a mostly guarded view on Zoom in the near-term, even though many acknowledge the company will benefit from the long-term shift to hybrid work.
“Numbers largely affirm market concerns about churn and signs of slowdown in enterprise business too with large deals moving back into a normal cycle,” said Morgan Stanley analyst Meta Marshall in a research note. “More bullish views likely to be reined in for now but remain confident on the long-term platform attractions and growth potential.”
Marshall reiterated an Overweight rating on Zoom’s stock, or the equivalent of Buy, with a price target of $400