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

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.