Zoom dropped from Nasdaq in sign pandemic-era darling trade is over
New York | It’s the end of an era for the poster-child of pandemic-age stock darlings.
Zoom Video Communications is no longer be a part of the Nasdaq 100 index as of the market open on Monday. The stock has underperformed every major equity benchmark in 2023, rising just 5.7 per cent, as fundamentals weaken and Wall Street analysts scale back expectations for growth.
Zoom’s video conferencing software was a smash hit during the pandemic as entire industries were forced into remote working more or less overnight. Bloomberg
Shares of the videoconferencing software company rallied almost 400 per cent in 2020 when investors piled into names that were poised to benefit from pandemic-induced lockdowns.
But growth fell off a cliff with workers returning to offices and competition intensifying from Microsoft’s Teams. Sales expansion has been in the single digits for more than a year, a far cry from the triple-digit quarters the company reported in the pandemic.
Other high-fliers of that period, like Peloton Interactive and Teladoc Health have also not kept up with this year’s stock rally, with those names falling 23 per cent and 13 per cent, respectively. DocuSign, another pandemic darling, is considering a sale after its growth has slowed massively in recent years, the Wall Street Journal reported on Friday.
Inclusion in the Nasdaq 100 boosts a firm’s investor profile and adds to trading liquidity – factors that can potentially propel a company’s stock price higher. Six additional companies are leaving the Nasdaq 100 and seven joining as part of the annual makeover of the tech-heavy benchmark.
A Zoom spokesman declined to comment.
Cultural status fades
Wall Street strategists are also backing away from the company, with about 70 per cent of analysts polled carrying a “hold” rating on the stock, compared with 41 per cent in June 2020. Meanwhile, revenue growth is expected to stay in the low- to mid-single digits for the next few fiscal years.
Not only has Zoom lost the spotlight of the stock market – it’s less a part of the cultural zeitgeist. The business-oriented office application became critical infrastructure in 2020 as everyone from small businesses to schools and yoga classes had to start operating remotely. Today, many of those everyday users have left the platform, denting growth and profitability.
To bring back growth, Zoom is offering a wider suite of applications for businesses like contact centre software and persistent chat similar to Salesforce’s Slack. Zoom Phone, one of the company’s most important secondary bets, hit 7 million paid users in the quarter. Still, these non-video offerings have yet to significantly reverse revenue growth stagnation.
Zoom has said it is looking for acquisition opportunities to spark growth. The company held discussions about possibly resurrecting an acquisition of software maker Five9 after an initial multibillion-dollar agreement fell apart in 2021. Five9 and Zoom later said they are not pursuing a transaction.
Not every stay-at-home stock has suffered. Video streaming companies Roku and Netflix are up up 136 per cent and 60 per cent, respectively. In fact, DoorDash is being added to the Nasdaq 100, after climbing 108 per cent.
Bloomberg
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