Zoom faces a threat from Microsoft Teams, but what’s the risk?

Zoom Video Communications Inc. benefited and suffered from inflated communications expectations in the age of COVID – it soared during the lockdown days of 2020 and early 2021, but returned to Earth when vaccines became available and that more people have returned to work.

Fast forward to mid-2022. Stock ZM from Zoom,
+0.50%
is down more than 80% from its October 2020 closing high of $568.34, and a major brokerage firm has deep doubts as the video conferencing company prepares to report results for the second Monday. fiscal quarter.

“Zoom’s post-COVID growth trajectory has always been more challenging, given the drive dynamics, but we see new hurdles to sustaining growth,” Citi Research analyst Tyler Radke wrote Tuesday. downgrading Zoom shares to sell from breakeven.

The main obstacle is the increasingly tight competition from Microsoft Corp.’s MSFT,
-0.18%
Teams proceeds compounded by macro pressures on small businesses, said Radke, who cut his price target on Zoom shares to $91 from $99.

Read more: Zoom’s stock is down 80% from peak, and Citi sees ‘new hurdles’ ahead

Conversely, a survey of work-from-home software by Morgan Stanley concluded that “overly negative opinions” of Zoom users hemorrhaging to Teams are “probably overblown”.

While Morgan Stanley analysts recognize enterprise customers are adopting Teams with more regularity, they’re also rolling out Zoom to maintain both licenses at the request of employees who value Zoom’s ease of use.

A rebranding of the company’s platform in June as “Zoom One,” which combined persistent chat, video, phone, and digital whiteboards for a slightly reduced price of $25 per month, or 250 $ per year, has softened Zoom’s appeal among large corporations, according to Morgan Stanley.

What to expect

Earnings: Analysts on average expect Zoom to post earnings of 94 cents per share, up from $1.07 per share a year ago. Analysts had expected 87 cents per share at the end of April.

Contributors to Estimize — a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, business executives, academics and others — predict earnings of 94 cents per share, on average.

Revenue: Analysts on average expect Zoom to report total revenue of $1.12 billion in the second quarter, up from $1.02 billion a year ago. Estimate contributors also forecast $1.12 billion in revenue.

Movement of stock: Zoom stock has plunged 40.5% so far this year, while the S&P 500 SPX index,
-0.06%
decreased by 10%. Zoom shares are up 23% since the company’s last quarterly earnings announcement on May 23.

What analysts say

In the current analyst debate over Teams’ impact on Zoom, Morgan Stanley’s Meta Marshall and Keith Weiss have strongly argued that Zoom will meet second-quarter revenue and earnings estimates. However, they warned of a “weak expectation” for the 2022 financial year.

“We believe hitting top line with a modest increase in operating margin should be sufficient in the quarter, but we expect guidance to remain fairly conservative on both,” they wrote on Tuesday, in now an overweight rating on the stock and a price target of $140.

Mizuho Securities analyst Siti Panigrahi sees potential upside in Zoom’s decision last month to limit meetings hosted by basic (free) users to 40 minutes. He thinks the change will force some free users to upgrade to a paid Pro plan for $14.99 per month or $149.90 per year.

“We believe this conversion to paying users, coupled with stabilization of churn, should provide benefits to flattish’s management advice. [year-over-year] growth for the online segment in FY23,” wrote Panigrahi, who views Zoom shares as a buy with a price target of $190.

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