Zoom Video Communications stock: Rival puts a lot of pressure on

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by Klaus Schachinger, Euro on Sunday

AOn the floor, it’s a big damper for the leader, Zoom Video Communications, whose technology has made video conferencing via computers and smartphones commonplace around the world. Revenue for the second quarter of the fiscal year ended January rose eight percent year-over-year to $1.1 billion, but fell short of the $1.115 billion to $1.12 billion the San Jose, California-based company had forecast. And this trend is likely to continue over the coming quarters.

Over 80 percent depreciation

On the stock exchanges, the minimal deviation from the company’s own forecast accelerated the slide in the papers. The share has lost more than 80 percent from its all-time high on October 19, 2020 at EUR 483. Investors are interpreting the slower gains as a signal of a prolonged slowdown.

A key factor in Zoom’s business success during the pandemic has been its free basic plan, with limits on usage time and number of participants. Private and corporate customers could easily test the software and, if they were satisfied, increase the usage time and the number of conference participants for a fee.

However, since the pandemic subsided, demand for video conferencing has fallen. And the competition is getting stronger. Cisco with Webex and especially Microsoft with its “Teams” software for video conferencing and telephony as part of the Office 365 software package have caught up.

High market growth

The market remains attractive. Fortune Business Insights estimates global revenue from video conferencing hardware and software at $6.87 billion in 2022 and expects revenue of around $14.6 billion in 2029 – an annual increase of 11.3 percent. Video conferences are particularly lucrative for companies. Working from home is now a permanent option in many companies.

And Zoom has largely focused on corporate customers and is now also building a business for telephony, for example for call centers. The 18 percent increase in corporate customers for video conferencing and the almost four million users of Zoom Phone, twice as many as a year ago, are bright spots of the second quarter. It is estimated that Zoom Phone will soon deliver a tenth of the proceeds.

Rival puts pressure on

For the financial year up to January 2023, CFO Kelly Steckelberg is now forecasting sales of 4.4 instead of the previous 4.55 billion dollars, almost ten percent more than in the previous year. Since June, the Californian company has been offering Zoom One, a package consisting of chat, video conferencing, telephony and presentation platforms per workstation for $25 a month or $250 a year. Morgan Stanley analysts say that makes Zoom more popular. The business of the market leader in video conferencing delivers high returns. Zoom is debt-free and has $5.4 billion in reserves.

But rival Microsoft is putting pressure on. For the fiscal year that ended in June, the group reported 270 million Teams users, an increase of 86 percent. It’s getting harder for Zoom to compete.

Negative pressure: With the latest disappointment, the share lost another ten percent. Secure position with tight stop.

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