Brief Summary:
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- The shares of Zoom Video Communications were downgraded to “sell” by a Wall Street analyst.
- His arguments often focus only on the here and now.
- Zoom is set up to maintain its market dominance for the near future.
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So, what exactly happened?
On Tuesday, shares of Zoom Video Communications (NASDAQ:ZM) fell as high as 8.3 percent. The stock was still down 7.9% at 10:29 AM ET.
A trigger for the decline in teleconferencing shares was bearish comments from analysts.
What is the Reason?
The Fly reports that Tyler Radke, an analyst at Citi, has cut his recommendation on Zoom Video Communications (NASDAQ:ZM) shares to sell from neutral (hold) and set a price objective of $91. This indicates that the stock might fall by another 20% from Monday’s closing price, even though it has already plunged by nearly 70% over the last year.
In his analysis, Radke listed several challenges that might be difficult for the videoconferencing expert to overcome. Despite being a key market for Zoom’s expansion, small and medium-sized companies (SMBs) are feeling the effects of the persistent macroeconomic malaise and uncertainty. He predicts that small and medium-sized businesses (SMBs) and other internet users will continue to defect in droves under the existing conditions, making expansion in the future very challenging.
Another competitor he mentioned was Microsoft Teams, which competes for head-on with Zoom in the online conference room market.
According to Radke, this double whammy would more than cancel out any growth in market share brought on by innovative new products and keep a lid on Zoom’s profits moving forward.
What’s Next for Zoom Video?
To be clear, much of Radke’s analysis focuses on potential near-term outcomes. Zoom (NASDAQ:ZM) isn’t the only company struggling in today’s uncertain economy. Overcoming these obstacles will put Zoom in a great position to keep expanding. Microsoft Teams has been a competitor for some time, but it didn’t stop Zoom from making substantial headway and capturing market share, especially at the outbreak’s outset.
When Zoom Video Communications (NASDAQ:ZM) announced its first-quarter financial results for fiscal 2023 in May, they were far better than anticipated, surprising both critics and investors. We saw a 12 percent increase in sales to $1.1 billion. The company’s sustained heavy investment in R&D bodes well for the development and enhancement of future products, notwithstanding a decline in profitability. Zoom increased its free cash flow, which shows the drop in earnings was due to non-cash expenditures like depreciation.
Despite the difficulties, investors focusing on the long term should continue considering Zoom Video Communication a purchase.
Featured Image: Megapixl @Yalcinsonat
Author Shariq Khan 
