Earnings Outlook: Zoom faces a threat from Microsoft Teams, but how great is the risk?

by | Aug 18, 2022 | Stock Market

Zoom Video Communications Inc. has benefited and suffered from the outsize expectations of communications in the age of COVID — it soared during the lockdown days of 2020 and early 2021, but came crashing back to Earth when vaccines became available and more people returned to work. Fast-forward to mid-2022. Zoom’s stock
is down more than 80% from its October 2020 closing high of $568.34, and a major brokerage firm has deep doubts as the video-conferencing company prepares to report fiscal second-quarter results on Monday.

“Zoom’s post-COVID growth trajectory has always been more challenging, given pull-forward dynamics, but we see new hurdles to sustaining growth,” Citi Research analyst Tyler Radke wrote Tuesday in downgrading Zoom’s stock to sell from neutral. The primary obstacle is increasingly tight competition from Microsoft Corp.’s
 Teams product, compounded by macroeconomic pressures on smaller businesses, said Radke, who slashed his price target on Zoom shares to $91 from $99. Read more: Zoom stock is off 80% from peak, and Citi sees ‘new hurdles’ ahead Conversely, a work-from-home software survey by Morgan Stanley concluded “overly negative views” of Zoom hemorrhaging users to Teams is “likely overblown.” While Morgan Stanley analysts acknowledge enterprise customers are adopting Teams with more regularity, they also deploy Zoom to maintain both licenses at the request of employees who favor Zoom’s ease of use. A new branding of the company’s platform in June as “Zoom One,” which combined persistent chat, video, phone and digital whiteboards for a slightly discounted $25 per month, or $250 a year, has sweetened the appeal of Zoom among large businesses, according to Morgan Stanley. What to expect Earnings: Analysts on average expect Zoom to report earnings of 94 cents a share, compared with $1.07 a share a year ago. Analysts were projecting 87 cents a share at the end of April. Contributors to Estimize — a crowdsourcing platform that gathers estimates from Wall Street analysts …

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