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Zoom Delivers More Security With Software Update

By Donna Fuscaldo - Apr 28, 2020 at 6:12AM

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Zoom is delivering on its promise to add more security to its video conferencing app, enabling investors to breathe a sigh of relief.

Zoom Video Communications (ZM 2.46%), the popular video conferencing app to stay connected during the COVID-19 pandemic, has beefed up its security as part of its 90-day security enhancement plan. That's welcome news to tech stock investors who are fearful Zoom is a flash-in-the-pan story, ultimately fizzling out as consumers and corporate America turn to more secure offerings. Critics have argued that the platform isn't sophisticated enough to handle corporate and educational customers, making these new efforts crucial to proving Zoom's ability to securely handle its surge in customers.

A person on a videoconference with four participants on the computer screen.

IMAGE SOURCE: GETTY IMAGES.

Zoom 5.0 beefs up encryption 

Called Zoom 5.0, the company's latest software update strengthens the service's encryption standard, making it harder for hackers to intercept data. Zoom found itself in hot water last month when news surfaced that it wasn't using end-to-end encryption -- meaning messages are encoded by the sender, decoded only by the recipient, and stored entirely in coded form while in transit between the two. Some data was even being routed through China, even though the call and the participants were based in the U.S.

In addition to beefing up its encryption, Zoom is giving more control to account administrators. They can now choose which data center region the meeting is hosted in, preventing their calls from getting routed, say, through China. That's a big deal for corporate customers worried that by using Zoom trade secrets will fall into the wrong hands. In order for Zoom to move beyond being a COVID-19 story, it needs to have sustainable revenue growth over the long term. It won't get that from free consumer accounts, but from corporate customers that subscribe to a service they can trust and have more control over.  

"I am proud to reach this step in our 90-day plan, but this is just the beginning," wrote Zoom CEO Eric Yuan in the blog post. "We will earn our customers' trust and deliver them happiness with our unwavering focus on providing the most secure platform."

Zoom has been taking flak for weeks 

For weeks now, Zoom has been under attack from critics who say the videoconferencing app isn't secure enough to be used en masse. With the pandemic raging on, schools shuttered across the nation, and millions of people working from home, Zoom has become one of the go-to video apps. But bad actors have taken advantage of lax Zoom security, breaking into meetings and potentially stealing corporate secrets. Zoom accounts have even turned up on the dark web, providing hackers easy entry into the video app.

As a result, various schools, businesses, and government agencies in the U.S. and around the world, along with the government of Taiwan and NASA,  have all banned Zoom. . Those security issues have also raised the ire of state attorneys general who are reportedly banding together to look into the privacy and security practices at the tech company. New York Attorney General Letitia James has already sent a letter to Zoom inquiring about its security enhancement plans.

For its part, Zoom has been up-front about its security woes, vowing to take 90 days to focus solely on security and privacy, and to earn back the trust of its customers. It also brought on Alex Stamos, former Facebook security chief and now an adjunct professor at Standard, to act as a security advisor for Zoom. Stamos said he was impressed by Yuan's vision for the videoconferencing app and the CEO's willingness to take "aggressive action" to beef up security.

Zoom keeps on zooming along 

Despite all the backlash and rivals trying to capitalize on Zoom's security issues, the videoconferencing app remains hugely popular. As of Wednesday (April 22), Zoom has more than 300 million daily users, up from 200 million at the start of April. Zoom had peak users of just 10 million at the end of December.

. That growth may not be predicated on offering customers a secure and private platform right now as people hastily find ways to stay connected during the pandemic. But once the virus is contained it will be.

If Zoom is able to meet the requirements of wary corporations, educational clients, and governments, that could be a boon for its business and stock. But if Zoom has any more high-profile missteps, paying customers may be more discerning about which platforms they use once shelter-in-place rules are lifted. Sure, Zoom is easy to set up and use, but when companies have more time to shift to a remote work environment, security will trump ease of use.   

For now, it looks like Zoom is making all the right moves to beef up its platform and stay out in front of the problems. If it maintains that focus, Zoom should continue zooming along. That presents investors with an opportunity to get in on a stock that, despite its upswing over the last few weeks, still has more upside potential as Zoom expands its base of paying customers.  

Donna Fuscaldo 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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