Zoom Video Stock Is Plummeting. Citi Says the Lowered Guidance Might Still Be ‘Too Optimistic.’

Zoom cited soft performance in its online business, a segment focused on smaller businesses and the consumer.

Olivier Douliery/AFP/Getty Images

Zoom Video Communications stock dived Tuesday as the market digested its latest results and Citi said the company’s lowered outlook is still “too optimistic.”

Zoom stock (ticker: ZM) dived about 16% to $82.34 in recent trading Tuesday.

Zoom on Monday projected earnings between $3.66 and $3.69 per share for the full fiscal year, lower than Wall Street’s forecast for $3.78 a share. Management had previously estimated full-year earnings up to $3.77 a share. The company also lowered its sale outlook for the full year to between $4.39 billion and $4.40 billion, falling short of Street estimates for $4.51 billion and down from a previous call of up to $4.55 billion.

The company blamed its online business, a segment focused on smaller businesses and the consumer, which saw weaker new customer additions in the second fiscal quarter.

Zoom saw outsize growth during the peak of the pandemic in 2020 as demand for video conferencing boomed, but those days are now long gone. Sales rose 8% to $1.1 billion for the three months ended in July compared with the year-ago period. That marks the sixth consecutive quarter that revenue growth has decelerated year over year.

Citi’s Tyler Radke, who reiterated his Sell rating in a Tuesday note, says the revised guidance “could be too optimistic after the underperformance in Q2.” His argument rests on the weakening macroeconomic environment and generally less predictable buying patterns of consumers that could further hamper customer growth in the online segment.

Radke on Tuesday further lowered his price target to $76 from $91. He had cut his price target to $91 from $99 just a week ago, when he also downgraded the stock to Sell from Neutral.

Meanwhile Ryan Koontz of Needham remains on the sidelines. He maintained his Hold rating on Tuesday as he waits to see stabilized online sales and a material contribution to revenue from new products. Zoom recently unveiled a product called Zoom Contact Center, which helps clients route calls to the right support agent.

Out of the 33 analysts tracking the stock, about 36% are bullish, while roughly 61% rate it as Hold; Citi is the only Sell-rated analyst.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com

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