Investing

Zoom Stock Wipes Out More Than $15 Billion In Market Value After Earnings Reveal Pandemic Growth Is Waning

Topline

Despite surpassing earnings expectations in its second-quarter report, shares of Zoom Video Communications plummeted Tuesday morning as analysts zeroed in on the company’s diminishing growth prospects as in-person activity starts picking back up—making the former pandemic stock darling the latest casualty in a market now favoring the post-Covid environment. 

Key Facts

Zoom shares fell more than 15% in pre-market trading Tuesday, tanking the company’s market capitalization to about $86 billion and wiping out more than $15 billion in market value. 

The stock plunge started Monday evening after the company’s second-quarter earnings release, in which Zoom posted record revenue of $1 billion (up 54% year over year) despite executives acknowledging sales would likely slow after “unprecedented” growth at the height of pandemic uncertainty last year.

“We are happy people feel more comfortable out and traveling, but that’s really why we’re seeing the slowdown,” Chief Financial Officer Kelly Steckelberg said in a post-earnings call, noting the pandemic recovery has happened “a little bit more quickly” than the company previously expected.

Further fueling the stock’s sell-off, a slew of Wall Street analysts lowered their price expectations for Zoom shares Tuesday morning, with Deutsche Bank’s Matthew Nikam noting the “sharply moderating growth” would force the company’s valuation “back down to earth” after a meteoric rise of as much as 730% last year.

Despite the widespread bearishness, market analyst Adam Crisafulli, founder of Vital Knowledge Media, called the stock’s decline “overdone” in a Tuesday email, pointing out Zoom’s enterprise business, which caters to corporations, didn’t slow down despite the slower growth in business targeting individuals and small business.

In the post-earnings conference call, CEO Eric Yuan promised to double down on the company’s enterprise segment, saying Zoom stands to benefit from an increasing number of companies opting to embrace a hybrid work model, in which some employees continue working remotely.

Key Background

With shares down about 48% from their October record high, Zoom is only the latest pandemic stock darling now facing a stark reversal of fortunes. Last week, Peloton stock sank nearly 13% after the company similarly failed to impress investors with its second-quarter earnings report. Shares are now down 30% this year despite skyrocketing nearly 400% in 2020. Virtual healthcare company Teladoc and even ecommerce juggernaut Amazon are also among stocks posting negative returns this year after an early pandemic surge. 

Tangent

The broader technology sector has also struggled to keep up with its explosive growth from last year. Though it skyrocketed 43% in 2020, the tech-heavy Nasdaq is up just 20% this year, while the S&P 500 has climbed 22%. 

Chief Critic

“A lot of the big pandemic beneficiary companies posted underwhelming second-quarter earnings reports, but Zoom was one of the best,” Crisafulli says. “It clearly isn’t blowing away Wall Street like it did during the course of the pandemic, and that may be considered a knee-jerk negative, but its business is actually proving to be resilient.”

Further Reading

Peloton Stock Plunges After ‘Disaster’ Earnings Report Discloses Fed Investigation Into Treadmill Injuries (Forbes)

S&P 500, Nasdaq Surge To New Record Highs Again As Tech Stocks Lead Fed-Sparked Rally (Forbes)

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