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Why Zoom Video Stock Is Missing Out on Today's Stock Market Rally

By Rich Smith – Apr 6, 2020 at 12:50PM

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The Washington Post reports school systems are dumping Zoom.

What happened

The stock market rallied on Monday, and the Nasdaq is up nearly 5% in late morning trading. Yet one of the hottest "coronavirus stocks" -- companies investors have so far considered immune to the ill effects of the virus -- is falling.

As of 11:40 a.m. EDT, Zoom Video Communications (ZM 0.30%) shares are down 7.8%. Why?

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

For the answer, we turn to the pages of today's The Washington Post, which reports "some school districts around the country have started to ban the use of Zoom for online learning from home." These bans come in response to an FBI warning about the phenomenon of "Zoom-bombing" -- malefactors hijacking Zoom teleconferences and inserting themselves into the meetings.

Days after the FBI issued its warning, reports the Post, "the New York City Department of Education, which runs the largest school district in the country, said teachers should no longer use Zoom" and should instead use Microsoft's (MSFT 0.36%) Teams software for online collaboration and videoconferencing.

Clark County Public Schools in Nevada is also disabling Zoom access among its students and teachers. The Alpine School District in Utah is "reassessing" its use of Zoom, the Edmonds School District in Washington state is tightening security measures within Zoom, and "some elementary-school teachers" in Los Angeles are discontinuing use of Zoom on their own initiative, also reports the Post.  

Now what

Is all this a tempest in a teapot, a concern that can be easily erased as teachers new to Zoom get better acquainted with how to use their security settings to keep intruders out of their online classrooms? Perhaps.

In the meantime, though, the negative PR surrounding Zoom stock is growing, and Zoom stock is trading at a staggering 1,300 times trailing earnings -- and even 53 times trailing revenue. Even for often richly valued tech stocks, those numbers suggest that these shares were priced for perfection.

The fact that Zoom has been found to be even slightly short of perfect therefore implies that the shares deserve to fall.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Zoom Video Communications Stock Quote
Zoom Video Communications
$77.77 (0.30%) $0.23
Microsoft Stock Quote
$249.78 (0.36%) $0.90

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