The days of virtual happy hours are long past now that most of the world has moved on from COVID-19 lockdowns. Zoom Video Communications Inc. is still paying the price in its income statement and in the stock market.
Analysts predict the video-conferencing company, which went public in 2019, will report its smallest-ever increase in quarterly revenue late Monday. And Zoom’s shares have missed the big rally in technology stocks since mid-June, dropping 6.2 percent versus a 19 percent surge for the Nasdaq 100 Index.
Zoom’s sales exploded during the pandemic as individuals and businesses flocked to video conferencing. Many consumers, though, stuck to the company’s free service, and many businesses that were willing to pay for the offering had, and still have, other options, such as Microsoft Corp.’s Teams. While Zoom is profitable, expectations for its sales growth may still be too high.
“Even if the company guided to more profitability in a more macro constrained environment, a more conservative top-line outlook could cause the name to trade off in the near term,” Meta Marshall, an analyst at Morgan Stanley, wrote in a research note.
Investors are on edge about the second-quarter earnings. The options market implies they expect a 13 percent move in either direction for the stock after the report, according to data compiled by Bloomberg.
Since going public in 2019, the company has beaten revenue and profit estimates every single quarter, but its shares have fallen after six out the last seven reports, as investors look to see how Zoom will fare in a slower-growth, post-pandemic environment.
Analysts predict that sales increased 9 percent in the second quarter, down from 12 percent in the first. For this year and the next two, they estimate 11 percent to 13 percent growth, a far cry from the 300 percent -plus annual surge during the peak of the pandemic.
Now that the hyper-growth days are over, Zoom is looking to gain market share among business clients, pitting itself directly against technology giant Microsoft and to a lesser extent Cisco Systems Inc.’s Webex and Salesforce Inc.’s Slack.
Enterprise is “not easy business to win, when you think about Microsoft’s ability to package Teams into an Office 365 sale,” Bloomberg Intelligence analyst John Butler said.
“Zoom has shifted its focus to the enterprise segment for growth, where I don’t think their strong brand name will help them as much as it did in the consumer online market,” Butler said.
He sees more competition from Microsoft Teams and also expects smaller mom-and-pop businesses to cut back on less critical expenditures as inflation squeezes their budgets.
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