Zoom’s shares fell more than 18 percent on Tuesday, putting it on track to have its worst day, after the video-chat business cautioned investors of a revenue decline, prompting Wall Street companies to lower their price expectations on the stock.
However, if it survives, it will be the largest single-day decrease since November 9, 2020, when shares plunged 17.3% to $413. Ever since the company’s stock price has more than dropped, and as of mid-morning Tuesday, it was selling at around $198 per share.
Zoom was one of the lockdown stocks to purchase, rising from obscurity in the corporate software market to become a popular name. Over the last nearly two years, millions around the world have used the company’s technology to stay up with school, work, or socialize. However, when people go back to work and school, progress is diminishing.
BTIG maintained its buy rating while lowering its price target to $400 from $460. The cut was made to “better reflect current market sentiment and group multiple compression,” according to the firm. In addition, Deutsche Bank Research decreased its one-year objective from $350 to $280.
Deutsche Bank in a statement on Tuesday stated that while the company is positive on Zoom’s strategic goals and investments in important growth areas, the institution “find it more difficult to enjoy a stock with more steeply decelerating growth and incremental pressure on profitability.”
Price projections were also lowered by Baird, Guggenheim, Wells Fargo, Stifel, UBS, Piper Sandler, and KeyBanc. However, Wall Street remains optimistic about Zoom’s prospects.
Zoom’s revenue climbed 35% year over year in the quarter that ended Oct. 31, down from a 54 percent rise the previous quarter. Zoom expects adjusted earnings of $1.06 to $1.07 per share on revenue of $1.051 billion to $1.053 billion in the fiscal fourth quarter, or a 19 percent increase.
What Does the Future Hold for Zoom Stock?
Zoom’s stock is down nearly 65 percent from its October 2020 highs, but it remains to be seen whether investors will hurry to acquire the stock after yet another dip.
Zoom is expected to post earnings of $4.77 per share in the coming fiscal year, giving them an ahead P/E of about 43. This suggests that, despite the enormous retreat from historic highs, Zoom stock remains overvalued.
The prevailing market expectation predicts minimal earnings growth, which is bad news for a growth stock with a high price-to-earnings ratio. Although the company is attempting to place itself for a hybrid work model in post-pandemic work, it is unclear if the market will be tolerant if the firm does not show significant growth in the future quarters.
At this time, it appears that the risks of further multiple contractions are very high. The shares may find some investors in the short future, as its RSI is approaching the severely overbought region. In the long run, the company must find positive catalysts, or its stock will continue to decline.