Zoom shares down 90% from peak as pandemic boom fades

Nov 22 (Reuters) – Shares of Zoom Video Communications Inc (ZM.O) have tumbled about 90% from their pandemic peak in October 2020 as the former investor darling struggles to adjust to a post-COVID world.

The stock was down nearly 10% on Tuesday after the company cut its annual sales forecast and posted its slowest quarterly growth, prompting at least six brokerages to cut their price targets.

The company, which became a household name during lockdowns due to the popularity of its video-conferencing tools, is trying to reinvent itself by focusing on businesses, with products such as cloud-calling service Zoom Phone and conference-hosting offering Zoom Rooms.

Analysts, however, say any turnaround in the business is still a few quarters away as growth in its mainstay online unit slows and competition from Microsoft Corp’s (MSFT.O) Teams and Cisco’s (CSCO.O) Webex and Salesforce’s (CRM.N) Slack gets intense.

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“Zoom has a fundamental flaw – it has needed to spend heavily to keep hold of market share. Spending to cling onto, rather than grow, market share is never a good place to be and was a sign of trouble ahead,” Hargreaves Lansdown equity analyst Sophie Lund-Yates said.

The company’s operating expenses surged 56% in the third quarter as it spent more on product development and marketing. Its adjusted operating margin shrank to 34.6% from 39.1% a year earlier.

Some brokerages believe acquisitions could help revive growth at Zoom, but Chief Executive Eric Yuan said on a post-earnings call that he continued to see heightened deal scrutiny for new business.

“The game is not over for them but without acquisitions this is a multi-year path to returning to higher growth,” Needham & Co analyst Ryan Koontz said.

Competition from Microsoft’s Teams and Salesforce’s Slack has blunted its edge

Reporting by Chavi Mehta and Aditya Soni in Bengaluru; Editing by Anil D’Silva

Our Standards: The Thomson Reuters Trust Principles.

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