Now that the majority of the world has moved past Covid-19 lockdowns, the days of virtual happy hours are long gone. The cost is still being felt by Zoom Video Communications Inc. (NASDAQ:ZM) in both its income statement and the stock market.
Zoom Video Communications Inc.
The video conferencing business, which went public in 2019, is expected to announce its smallest-ever quarterly sales rise on Monday night, according to analysts. And Zoom’s shares have fallen 7.8% vs a 17% rise for the Nasdaq 100 Index, missing the major bounce in technology equities since mid-June.
Zoom’s sales skyrocketed as people and businesses flocked to video conferencing during the outbreak. However, many customers continued to use the company’s free service, and many companies that were ready to pay for the service had other options and still do, including Teams from Microsoft Corp.(NASDAQ:MSFT). Although Zoom is profitable, there may still be too much hope for its revenues to increase.
A more cautious top-line projection “may cause the name to trade off in the near term,” wrote Meta Marshall, an analyst at Morgan Stanley, “even if the company guided to increased profitability in a more macro constrained environment.”
Concerns over the second-quarter earnings have investors on edge. According to information gathered by Bloomberg, the options market suggests they anticipate a 13% rise for the stock following the report in either direction.
The business has exceeded revenue and earnings forecasts each and every quarter since going public in 2019, but its shares have dropped after six of the last seven reports as investors wait to see how Zoom will perform in slower growth, post-pandemic scenario.
Sales are expected to rise 9% in the second quarter, down from 12% in the first, according to analysts. They predict 11% to 13% growth for the current year and the following two years, a sharp decline from the yearly growth rate of more than 300% at the height of the pandemic.
After a period of rapid expansion, Zoom is now attempting to increase its market share among companies that use its services. It is directly competing with Microsoft and, to a lesser extent, with Webex and Slack from Cisco Systems Inc.(NASDAQ: CSCO) and Salesforce Inc.(NYSE: CRM)
When you consider Microsoft’s ability to bundle Teams into an Office 365 transaction, enterprise is “not an easy business to win,” according to Bloomberg Intelligence analyst John Butler.
Butler stated that Zoom has turned its attention to the enterprise market for growth, where she believes its strong brand recognition won’t be as beneficial as it was in the internet consumer market.
On the stock, analysts have divided opinions, with 14 advising investors to buy and 15 saying to hold. Last Monday, Tyler Radke of Citigroup Inc. became the lone analyst to rank the stock as a sell. In addition to expecting smaller mom-and-pop firms to cut back on less important expenses as inflation squeezes their budgets, he predicts increased competition from Microsoft Teams.
Featured Image: Megapixl @Insidestudio
Author Jowi Kwasu 
