Tuesday morning brought more gains to the stock market, albeit without quite the same level of momentum that created such a big move higher on Monday. Market participants were ready to remain confident that the economic prospects for a period after the coronavirus pandemic gets under control could be better than feared. As of 11:30 a.m. EDT today, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 564 points to 23,171. The S&P 500 (SNPINDEX:^GSPC) rose 56 points to 2,720, and the Nasdaq Composite (NASDAQINDEX:^IXIC) gained 109 points to 8,022.
Yet once again, videoconferencing stocks weren't able to gain ground on a positive day on Wall Street. Zoom Video Communications (NASDAQ:ZM) lost 9%, while RingCentral (NYSE:RNG) saw its stock sink 8%. With the losses, some investors fear that the enthusiasm with which those stuck at home have embraced video communications could evaporate once people start to return to work -- leaving those who bought shares with unrealistic hopes about the long-term future of companies offering that technology.
Zooming away from the platform
In the case of Zoom, news that some users have started to move away from its videoconferencing platform has raised concerns about the staying power of the service. On Tuesday morning, the Taiwanese government told its agencies not to use the Zoom conferencing app, citing concerns about security and privacy.
The move was the latest in a series of high-profile defections. Among the problems that some users have pointed to are the lack of end-to-end encryption of the videoconference meetings set up on Zoom, as well as the ability for those who aren't supposed to be on a given call to gain access without being invited. Taiwan's schools will also face a ban on Zoom, joining some U.S. school districts that have shied away from unfettered use of the platform.
Zoom has owned up to the issues, and the company has promised to make the user experience safer and better. How quickly that can happen, though, remains uncertain.
Competition on the video front?
The other issue facing Zoom is new competition from RingCentral. Until recently, the two companies had what both Zoom CEO Eric Yuan and RingCentral CEO Vlad Shmunis called a "fruitful" and "strong partnership," working together so that RingCentral could provide Zoom-powered videoconferencing to its cloud-based private branch exchange clients.
Yet now, RingCentral is coming out with its own service. An early April press release didn't mention the Zoom partnership at all, instead noting that RingCentral worked closely with Alphabet's (NASDAQ:GOOGL) (NASDAQ:GOOG)] Google on RingCentral Video "to ensure the highest quality browser-based video experience" and did extensive beta testing before releasing it more broadly.
RingCentral is a relatively small company right now, leading some to dismiss it as a viable threat to Zoom's dominance. Yet the fact that both RingCentral and Zoom are seeing share-price declines suggests that the prospects for the entire videoconferencing market might not be as vigorous as initially thought. Moreover, seeing Google playing a role with RingCentral could signal that major tech giants are finally starting to pay closer attention to the industry -- and that could create an even more important competitive threat in the long run.
Both Zoom and RingCentral have seen their shares soar in recent years, and so some pullback is to be expected. Even if fundamental growth continues for both businesses, it wouldn't be surprising to see the share prices take a rest from their big gains.