Zoom Stock Alert: Key Indicators Raise Red Flags

February 7, 4:46 pm

Zoom was one of the biggest success stories of the pandemic as the pandemic accelerated the shift to remote work, leading to a huge increase in demand for video conferencing services. Zoom's stock price reflected this demand, reaching an all-time high of $559 per share in October 2020. However, as the pandemic continues to wane, the prospects for Zoom's growth have become less certain. The company is now facing a number of challenges that raise questions about its future as a reliable investment.

One of the biggest concerns is the decline in web traffic to the company's website. Over the past two years, web traffic has fallen by over 60%. This trend is alarming since many new customers would go to zoom.us to set up a new subscription and it shows no signs of reversing, suggesting that the company's popularity may be waning. Additionally, Zoom's app downloads have remained stagnant, but the company's mobile app still has more daily downloads than Slack but fewer than Microsoft Teams.

Another major issue for Zoom is its staff. The company grew fat during the pandemic to over 8000 employees which seems like a lot for a company with a singular product. Our job posting data shows us that the company has reduced their open positions from an average of 500 openings to 15 in just a couple of months. And today, the company announced they are cutting its workforce by 15% as demand slows. This might help improve the company's margins but a slowing demand is not promising.

For the remaining employees, the future looks a bit bleak. The internal business outlook at Zoom has fallen from 90 (out of 10) to 71 in the last 18 months, indicating that morale may be low. This could be a reflection of the company's struggles to sustain its growth, as well as its challenges in maintaining its competitive position in a rapidly evolving market.

Finally, looking at the financials, Zoom's PE ratio is still high at above 30 (higher than Microsoft's). Additionally, its revenue has remained flat at around $1.1 billion over the last four quarters, indicating that the company may be struggling to generate new revenue streams. The company also shared in their last earnings reports that "quarterly results have fluctuated and may in the future fluctuate significantly and may not fully reflect the underlying performance of our business". Not bullish.

In conclusion, while Zoom was a popular stock during the pandemic, it may now be a risky investment. The market reacted positively on the news regarding layoffs (price is currently up 10%) but the the company is facing a number of challenges, including declining web traffic, stagnant app downloads, staffing cuts, a declining internal business outlook and the expectation that revenue growth rate will further decline. As such, as investors take a moment to breath today, they may still want to consider their investment in Zoom.

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