Zoom shares: what next as its stock slides over security concerns?
The video conferencing app Zoom has seen its share price skyrocket due to the Covid-19 virus. However, recent developments might suggest a rocky road ahead.
Despite being a relatively niche video conferencing app just a few weeks ago, the California-based remote conferencing platform Zoom Video Services has rapidly become a household name, adding billions of dollars to its market capitalisation in March 2020.
Social distancing and isolation measures put in place due to the Covid-19 virus, which has forced offices and universities around the world to close, have caused demand for the services offered by Zoom to skyrocket as more people switch to remote working.
Since the start of the coronavirus outbreak, Zoom has seen its market value increase exponentially, reaching $42 billion (£34.2 billion) by 31 March. Between the beginning of February, when the virus was only beginning to go global, and 23 March, Zoom's share price more than doubled from $76.30 to a peak of $159.56.
However, despite this astronomical growth and the heaps of praise piled onto it by financial pundits, cracks are beginning to emerge.
Security concerns trigger share price plunge
As schools and businesses around the world began using Zoom for the first time over the past few weeks, concerns have grown over the security of the platform. A number of high-profile hacks of Zoom meetings, in which potentially sensitive data was exposed, has led to government authorities paying closer attention.
After SpaceX and Tesla CEO Elon Musk banned all employees from using Zoom, as did school districts across the US, it began to look like the party was over for the conferencing platform last week.
After the FBI met with Zoom's leadership team on 31 March and effectively ordered them to improve their cybersecurity infrastructure, the company's share price started to drop. Over the last week, the Zoom share price has dropped 18%, ending up at $122.90 by Monday’s close.
Despite rallying slightly when the NASDAQ opened on Monday morning, it's clear that investors and traders are feeling skittish about this once-hyped company.
An uncertain future for Zoom
For investors and traders considering whether Zoom is still a promising prospect, there are a few things to consider when attempting to predict the future of the company. For one, the company's CEO, Eric Yuan, has made strong public pledges to beef up the security of his app, with numerous privacy measures added over the past couple of days.
Perhaps more importantly, it's worth considering the longer-term prospects for the video conferencing market. There is little sign of the remote working arrangements necessitated by Covid-19 being eased any time soon.
Even if offices were to reopen tomorrow, the trend towards remote working, which has seen significant growth over the past decade, would continue to push ahead. Considering that Zoom currently enjoys one of the largest market shares within the video conferencing technology sector, this future growth bodes well for the long-term future of the company.
A lot will depend on how effectively Zoom can assuage security concerns and avoid future PR nightmares. Despite the disruption of the past few days, the company's future still looks bright.
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. See full non-independent research disclaimer and quarterly summary.
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