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Why Zoom Video Stock Dropped 5% This Morning, Then Rebounded

By Rich Smith – Aug 24, 2020 at 3:42PM

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A tempest in an internet teapot tests Zoom's valuation.

What happened

Shares of Zoom Video Communications (ZM 1.27%) dropped more than 5% in early trading Monday after it suffered a partial service outage this morning. But Zoom says it has restored service to its customers, and now its stock is headed back toward where it started the day (at least part of the way). As of 2:50 p.m. EDT Monday, shares remained down 2.3%.

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Image source: Getty Images.

So what

Reuters says some 17,000 Zoom users (including my own child's fourth-grade class) reported issues getting into their remote-learning classes this morning.  

Zoom isn't saying what caused the outages, but confirms that it has resolved the issue and is monitoring the services to make sure they remain operational.

Now what

Zoom's quick fix is one reason the stock has managed to pare its losses from earlier in the day. And although the outage was sizable, it doesn't appear to have been universal. In April, Zoom stated that daily meeting participants on its network had grown to 300 million, and four months later, that number is probably even higher.

That doesn't mean there are 300 million people logging on to Zoom every day. But total users probably number in the millions, so 17,000 is a drop in the bucket.

Given that, I suspect the reason Zoom stock is still down at all today owes more to its extremely high valuation (more than 1,600 times trailing earnings) than to the relatively small number of outages suffered this morning.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

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