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Why Zoom Stock Fell Sharply on Tuesday

By Daniel Sparks - Mar 24, 2020 at 1:45PM

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Shares are taking a breather after a massive run-up.

What happened

Shares of online video conferencing company Zoom Video Communications (ZM 0.78%) were hit hard on Tuesday. The stock fell as much as 16.1% and was down 10.3% as of 1 p.m. EDT.

The growth stock's decline follows a huge run-up, suggesting that shares may simply be taking a breather. However, shares may also be down because President Donald Trump suggested on Monday evening that he may soon urge businesses to reopen -- a move that could slow a massive shift to virtual working.

A room of business people videoconferencing with a woman

Image source: Getty Images.

So what

Despite the stock's sharp pullback on Tuesday, Zoom shares are up 117% in the past three months. Indeed, the stock has been one of the rare beneficiaries during the coronavirus market downturn since Feb. 19. During this time, the stock is up 39% as investors bet that Zoom will benefit from a growing number of businesses letting their employees work from home.

But Trump said in a press conference on Monday evening that he may soon urge businesses to reopen. In addition, in a tweet on Tuesday, the president said:

Our people want to return to work. They will practice Social Distancing and all else, and Seniors will be watched over protectively & lovingly. We can do two things together.

Now what

When Zoom reported its fourth-quarter results earlier this month, management noted in its earnings call it had seen "significant usage of our platform" amid the coronavirus panic, implying that the situation will likely benefit the company. But if the world quickly returns to more normal working conditions, the company may not see as big of a benefit as investors were expecting.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications and recommends the following options: short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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