Zoom shares slump as lackluster growth worries investors

:Zoom Communications shares tumbled more than 5 per cent on Tuesday, as its forecast for low single-digit annual revenue growth disappointed investors after a recent rally.
Stiff competition from rival video conferencing services including Microsoft Teams has pressured Zoom, even as it expands its offerings with products such as phone systems and artificial intelligence assistants to boost demand.
Zoom, which rose to prominence during the pandemic, raised its expectations for fiscal year 2025 adjusted profit and revenue on Monday.
The midpoint of the San Jose, California-based company’s new annual revenue expectation of $4.656 billion to $4.661 billion was in line with analysts’ average estimate of $4.66 billion, according to data compiled by LSEG.
The midpoint of its fourth-quarter revenue forecast was also just about $1 million above estimates.
“Even at this beat-and-raise cadence, the accelerating growth is potentially peaked or nearing it,” Piper Sandler analysts said.
The company’s yearly revenue growth rate is expected to average at 3.1 per cent for fiscal year 2025, 2026 and 2027 according to data compiled by LSEG. Comparatively, Zoom recorded average annual growth of 21.6 per cent in the three fiscal years preceding 2025.
Zoom, shares of which have risen 19 per cent this month, was set to lose more than $1 billion in market value. Its market capitalization peaked in October 2020, crossing the $100 billion mark, but has since slumped to about $26 billion.
In a nod to its efforts to diversify its business away from its core video conferencing platform, the company changed its name from Zoom Video Communications to Zoom Communications.
“Ditching the ‘Video’ part of its name should help the market and prospective customers realize the business is not the same as the one which thrived during the pandemic,” said A.J. Bell analyst Dan Coatsworth.
Coatsworth also attributed the drop in Zoom’s shares to “profit taking after a very strong run ahead of the figures”.