Shares of Zoom Video Communications Inc. (NASDAQ: ZM) slights up 0.47% in pre trading session on Friday as the erstwhile investor favorite struggles to adapt to a post-COVID environment, the company has fallen by approximately 90% from its epidemic top in October 2020.
The business lowered its annual sales projection and reported its weakest quarterly growth, which led at least six brokerages to lower their price targets, and the stock was down over 10% on Tuesday.
The business is attempting to reinvent itself by focusing on businesses with products like the cloud-calling service Zoom Phone and the conference-hosting offering Zoom Rooms. The company, which became a household name during lockdowns due to the popularity of its video-conferencing tools, is trying to reinvent itself.
Analysts predict that any business revival would take a few more quarters as the growth of its core online business slows and competition from Microsoft Corp.’s Teams, Cisco’s Webex, and Salesforce’s Slack increases.
“The main problem with Zoom is that it has to spend a lot of money to maintain its market dominance. Spending to maintain market share rather than increase it is never a smart idea and was a foreshadowing of trouble to come “Sophie Lund-Yates, an equities analyst at Hargreaves Lansdown, said.
Due to increased spending on product development and marketing, the company’s operational expenditures increased by 56% in the third quarter. Its adjusted operating margin decreased from 39.1% to 34.6% from the previous year.
However, Chief Executive Eric Yuan stated on a post-earnings conference that he continues to observe more deal scrutiny for new business. Some brokerages believe acquisitions might help Zoom recover its growth.
According to Needham & Co analyst Ryan Koontz, “the game is not over for them, but without acquisitions this is a multi-year route to returning to greater growth.”
Zoom representatives predicted that their “Enterprise business would increase in the low to mid-twenties” and that their “Online business will fall roughly 8% for the year” during a conference call with investors and analysts. Due to “continuing foreign currency pressure,” the business revised its full-year operating income expectation upward by $50 million to about $1.5 billion while lowering its full-year sales view downward by around $15 million, or 0.3%, to between $4.37 billion and $4.38 billion.
Eric Yuan, the founder and CEO of Zoom, stated to investors that the company was dealing with “a tough macroeconomic climate.” Additionally, the business continues to “experience FX pressure and increased transaction scrutiny for new business.”
