Zoom stock sinks after ‘one of the worst quarters’ since IPO

Zoom Video Communications Inc. is showing momentum with some newer business areas, but shares of the teleconferencing company were sliding in premarket trading Tuesday after the company indicated challenges in its core business.

While Zoom
ZM,
-2.07%

Chief Financial Officer Kelly Steckelberg called out “strong growth” in the company’s enterprise business, she also noted pressure related to the strong U.S. dollar and subscription growth in Zoom’s online channel, which is made up of customers who don’t engage with Zoom’s direct sales team or sales partners.

“We have implemented initiatives focused on driving new online subscriptions, which have shown early promise, but were not enough to overcome the macro dynamics in the quarter,” she said on the company’s Monday afternoon earnings call.

See more: Zoom is struggling to convince consumers to pay, and the stock is sliding

Zoom was an early pandemic darling, but the company now must contend with a changing landscape as more companies bring workers into the office for face-to-face interactions. The company expects that its enterprise business will grow in the low- to mid-20% range this fiscal year, though it also anticipates that the online business will drop 7% to 8%.

“In our opinion, this was one of the worst quarters Zoom has reported since going public, as the macro environment is clearly challenging Zoom in addition to the competitive landscape (i.e. Teams),” Piper Sandler analyst James Fish wrote in a note to clients following the report.

Though Fish highlighted Zoom’s “traction” with newer products like its Zoom Phone and customer-experience offerings, he expects that the company will have to “use cash more to expand adjacent markets faster.”

He rates the stock at neutral while cutting his price target to $91 from $115.

Evercore ISI’s Peter Levine also pointed out the company’s “impressive” recent momentum with Zoom Phone, which he thinks could potentially make up 10% of Zoom’s revenue by the second half of fiscal 2024, based on the latest commentary. Additionally, he noted that the Contact Center customer-experience offering “continues to progress.”

Nonetheless, he was doubtful that these could drive meaningful positive changes for the stock over the short run.

“Bottom line: from our perspective, [management’s] commentary on Phone and Contact Center are commensurate to the potential TAM [total addressable market] expansion but given we are still in the very early innings in what morphed into a very competitive & fragmented market over the past 24 months, there’s no near-term catalyst that would act as a potential re-rate,” Levine wrote.

He cut his price target on the stock to $95 from $105, while maintaining an in-line rating.

Read: Zoom stock is off 80% from peak, and Citi sees ‘new hurdles’ ahead

While Bernstein analyst Peter Weed also stayed on the sidelines, he commented that he saw “glimmers of sun through the clouds.” Not only is Zoom showing “continued discipline” on adjusted operating margins, but the company also has continued momentum in its enterprise segment.

Weed cut his price target on Zoom’s stock to $104 from $122, while keeping his market-perform rating.

BTIG analyst Matthew VanVliet keyed in on Zoom’s new outlook, as executives cut their full-year forecasts for revenue and earnings.

“Overall, the pullback in FY23 profitability and FCF [free-cash flow] is somewhat concerning as top-line growth slows further, and thus we are downgrading shares of ZM to Neutral given significantly reduced near-term expectations,” VanVliet wrote. He previously rated the stock a buy.

Zoom shares were up 9% over a three-month span, as of Monday’s close, though they were down 71% on a 12-month basis. The S&P 500
SPX,
-2.14%

was up 4% over three months but down 8% over 12 months.

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