Zoom Shares Slump Over 12% as Revenue Outlook Disappoints

Zoom shares slumped more than 12% in an extended trading hour on Monday after the San Jose, California-based communications technology company warned that video conferencing demand is easing faster than anticipated following a pandemic-driven boom in 2020.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, forecasts fiscal third-quarter 2022 total revenue in the range of $1.015 billion and $1.020 billion and non-GAAP diluted EPS is expected to be between $1.07 and $1.08.

This increase is only modest compared with the multifold growth Zoom experienced last year during the COVID-19 crisis.

For the full fiscal year 2022, the company forecasts total revenue in the range of $4.005 billion and $4.015 billion and on-GAAP diluted EPS is expected to be between $4.75 and $4.79.

Following this, Zoom shares plunged over 12% to $305.05 in extended trading hours on Monday, hitting the lowest since May 20. The stock fell about 10% so far this year.

However, the company reported better-than-expected earnings and revenue in the second quarter.

Analyst Comments

“Zoom (ZM) beat FQ2 Street expectations by 3% in FQ2, a disappointment relative to investor expectations for a ~5% beat as SMB churn picked up. While a pickup in churn provides headwinds in NT, still believe with ent business growing 2x SMB, that ZM has an ability to outperform growth expectations over NTM,” noted Meta Marshall, equity analyst at Morgan Stanley.

“Zoom has established its position as the leader in video conferencing, now a growth market. The company has a meaningful competitive moat built on more than just architecture. Position within customers makes an attractive opportunity to expand into the broader UC market. Early wins are encouraging. Expanding platform with pending FIVN acquisition. Manageable churn post-COVID as a move to hybrid work setups.”

Zoom Stock Price Forecast

Twenty-one analysts who offered stock ratings for Zoom Video Communications in the last three months forecast the average price in 12 months of $424.25 with a high forecast of $495.00 and a low forecast of $345.00.

The average price target represents a 22.09% change from the last price of $347.50. From those 21 analysts, 11 rated “Buy”, 10 rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $360 with a high of $480 under a bull scenario and $240 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

Several other analysts have also updated their stock outlook. BTIG slashed the stock price forecast to $460 from $495. Piper Sandler cut the target price to $369 from $464. JPMorgan lowered the target price to $385 from $456.

“We remain impressed by management’s ability to overdeliver in terms of both growth and margins. Given strong results, we are raising our estimates slightly, driving our fair value estimate to $252 per share from $245 but we still view shares as overvalued,” noted Dan Romanoff, Equity Analyst at Morningstar.

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