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Why Zoom Stock Plunged Today

By Joe Tenebruso - Mar 2, 2021 at 8:08PM

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Management's projections for decelerating growth gave investors cause for concern.

What happened

Shares of Zoom Video Communications (ZM -0.46%) fell 9% on Tuesday, following the cloud communication leader's fourth quarter results. 

So what

Zoom's revenue soared 369% year over year to $882.5 million. Usage of Zoom's cloud-based video, voice, and chat tools continued to grow at a rapid clip -- and many of its free users chose to upgrade to premium packages. Zoom's customers with more than 10 employees surged 470% to roughly 467,100.

A person is pointing to a stock chart that rises sharply and then falls.

Zoom Video Communications' stock price pulled back sharply after its Q4 report. Image source: Getty Images.

"The fourth quarter marked a strong finish to an unprecedented year for Zoom," Eric Yuan said in a press release. "In FY2021, we significantly scaled our business to provide critical communications and collaboration services to our customers and the global community in response to the pandemic."

Zoom's profitability was also impressive. Its adjusted operating income rose 840% to $360.9 million, while its adjusted earnings per share increased 713% to $1.22.

Now what 

Looking ahead, Zoom's pandemic-related expansion will slow once the COVID-19 crisis subsides. The company will also face difficult year-over-year comparisons in fiscal 2022. Management sees revenue growing approximately 42% to $3.77 billion and adjusted EPS rising 8% to $3.62. This projected deceleration in growth is likely what led some investors to sell their shares on Tuesday.

Still, Yuan remains optimistic about Zoom's long-term future. "As we enter FY2022, we believe we are well-positioned for strong growth with our innovative video communications platform, on which our customers can build, run, and grow their businesses; our globally recognized brand; and a team ever focused on delivering happiness to our customers," Yuan said.

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