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Is Zoom Video’s spectacular run coming to an end?

Analysts believe that the Zoom Video Communications stock has already plateaued, with Covid-19 vaccines on the horizon.

  • Zoom Video Communications shaved off as much as 8.5% of its share price earlier this week
  • The stock’s growth momentum has slowed down in recent weeks, with more regulators approving the use of Covid-19 vaccinations
  • JPMorgan’s equity research team believes that stock upsides are already priced in
  • The video communication platform has been one of the biggest success stories in 2020

Zoom Video Communications’ shares closed 3.3% higher on Thursday (11 December 2020), snapping a two-day decline.

The stock lost as much as 8.5% of its share price over Tuesday and Wednesday, as positive Covid-19 vaccine developments continued to weaken the video communication tool’s subscriber business outlook.

Year-to-date, Zoom Video is up over 500%, with the bulk of the rally coming at the height of Covid-19 lockdown and social distancing measures, as businesses and individuals were forced to move meetings online.

JPMorgan: ‘Revenue multiple fully reflects upside potential’

But with more and more national health regulators approving the mass use of Covid-19 vaccines, analysts now see limited growth for the Zoom Video stock.

JP Morgan brokers on Wednesday (09 December) downgraded their rating on Zoom to ‘neutral’ from ‘buy’, positing that most of Zoom’s upside potential have already been priced into current share price levels.

‘If the current vaccines prove effective in manufacturing rates hitting scale, we believe the economic expansion starting in the June quarter could replicate that same environment from 2010,’ JPMorgan said in a note.

The analysts were referring to the global financial crisis, when stocks that had achieved the highest price-to-earnings (P/E) multiples at the end of 2009, then subsequently underperformed the following year.

Zoom's 12-month trailing P/E ratio stood at 278 times as at Wednesday (11 December) close, according to data from YCharts.

‘At this point we believe that the revenue multiple fully reflects the upside potential,’ the researchers wrote. Nevertheless, they raised their price targets on the stock from US$425 to US$450.

The analysts also predicted that Zoom’s under-10-employee business segment could be impacted, as Covid-19 treatments would ‘allow for more in-person interaction moving forward’.

The optimistic perspective on Zoom

Despite the bearish forecast, it was just last week that FBN Securities analyst Shebly Seyrafi wrote that Zoom’s solutions ‘will continue to be widely used’ even after a vaccine is distributed around the middle of 2021.

That’s because he believes ‘that the future of work and play is a hybrid one’.

Seyrafi cited how Zoom was able to expand its large-customers clientele, with nearly 1,300 customers generating over US$100,000 in annual revenue in the latest reporting period, up 136% year-on-year.

In light of the improved metrics, the analyst had kept an ‘outperform’ rating on the stock, but lowered his price target to US$525 from US$575 following the firm’s latest fiscal fourth-quarter guidance.

How to trade Zoom Video Communications with IG

Are you feeling bullish or bearish on Zoom Video’s stock?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <Zoom Video Communications> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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