Zoom Shares Fall 15 Percent As Investors Question Post-Pandemic Potential

Pandemic beneficiary stocks - including even Amazon - are suffering at the hands of investors who question their ability to continue outperforming the market as life increasingly returns to pre-Covid  rhythms. 

What is odd about this is that most of these companies are continuing to do well operationally and financially. But, evidently, investors seem not to believe this is sustainable. JL

Jonathan Ponciano reports in Forbes:

Despite surpassing earnings expectations in its second-quarter report, shares of Zoom plummeted as analysts zeroed in on the company's diminishing growth prospects as in-person activity starts picking back up. Zoom shares fell more than 15%, wiping out $15 billion in market value. A lot of the big pandemic beneficiary companies now face a reversal of fortunes. Peloton shares are down 30% this year despite skyrocketing nearly 400% in 2020. Teladoc and even Amazon are also among stocks posting negative returns this yearDespite surpassing earnings expectations in its second-quarter report, shares of Zoom Video Communications plummeted Tuesday morning as analysts zeroed in on the company's diminishing growth prospects as in-person activity starts picking back up—making the former pandemic stock darling the latest casualty in a market now favoring the post-Covid environment.

Zoom shares fell more than 15% in pre-market trading Tuesday, tanking the company's market capitalization to about $86 billion and wiping out more than $15 billion in market value. 

The stock plunge started Monday evening after the company's second-quarter earnings release, in which Zoom posted record revenue of $1 billion (up 54% year over year) despite executives acknowledging sales would likely slow after "unprecedented" growth at the height of pandemic uncertainty last year.

"We are happy people feel more comfortable out and traveling, but that's really why we're seeing the slowdown," Chief Financial Officer Kelly Steckelberg said in a post-earnings call, noting the pandemic recovery has happened "a little bit more quickly" than the company previously expected.

Further fueling the stock's sell-off, a slew of Wall Street analysts lowered their price expectations for Zoom shares Tuesday morning, with Deutsche Bank's Matthew Nikam noting the "sharply moderating growth" would force the company's valuation "back down to earth" after a meteoric rise of as much as 730% last year.

Despite the widespread bearishness, market analyst Adam Crisafulli, founder of Vital Knowledge Media, called the stock's decline "overdone" in a Tuesday email, pointing out Zoom's enterprise business, which caters to corporations, didn't slow down despite the slower growth in business targeting individuals and small business.

In the post-earnings conference call, CEO Eric Yuan promised to double down on the company's enterprise segment, saying Zoom stands to benefit from an increasing number of companies opting to embrace a hybrid work model, in which some employees continue working remotely.

KEY BACKGROUND

With shares down about 48% from their October record high, Zoom is only the latest pandemic stock darling now facing a stark reversal of fortunes. Last week, Peloton stock sank nearly 13% after the company similarly failed to impress investors with its second-quarter earnings report. Shares are now down 30% this year despite skyrocketing nearly 400% in 2020. Virtual healthcare company Teladoc and even ecommerce juggernaut Amazon are also among stocks posting negative returns this year after an early pandemic surge. 

TANGENT

The broader technology sector has also struggled to keep up with its explosive growth from last year. Though it skyrocketed 43% in 2020, the tech-heavy Nasdaq is up just 20% this year, while the S&P 500 has climbed 22%. 

CHIEF CRITIC

"A lot of the big pandemic beneficiary companies posted underwhelming second-quarter earnings reports, but Zoom was one of the best," Crisafulli says. "It clearly isn’t blowing away Wall Street like it did during the course of the pandemic, and that may be considered a knee-jerk negative, but its business is actually proving to be resilient."