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Why Shares of Zoom Video Declined by 13% in December

By Royston Yang – Updated Jan 7, 2022 at 11:01PM

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The videoconferencing software company continues to release new features even as it adapts to a post-pandemic hybrid work culture.

What happened

Shares of Zoom Video (ZM 3.01%) dropped by 13% in December, according to data from S&P Global Market Intelligence.

With this decline, shares of the videoconferencing software company have plunged by around 48.9% year to date.

Group of colleagues videoconferencing

Image source: Getty images.

So what

Zoom continued to report growth during its latest fiscal 2022 third-quarter earnings report. Total revenue for the quarter jumped by 35% year over year to $1 billion, while operating income climbed by 51.3% year over year to $290.9 million. Net income surged by 71.5% year over year to $340.3 million, because of a $122 million gain on investments. Free cash flow remained healthy at $374.8 million for the quarter, compared with the $388.2 million generated in the prior year's quarter.

What investors focused on, however, was Zoom's guidance for its fourth quarter. The company expects to chalk up revenue of around $1.05 billion, up just 19% year over year from the $882.5 million recorded in the fourth quarter of fiscal 2021. Back then, revenue had more than quadrupled from $188.3 million as the company witnessed a surge in people using its software and platform to telecommute and stay in touch with friends and colleagues.

Now what

With the widespread dissemination of vaccines around the globe, investors should expect Zoom's growth to slow further from the rapid acceleration it saw late last year. As economies slowly reopen and offices welcome workers back, the demand for videoconferencing tools should also moderate in tandem. Zoom continues to expand its customer base despite the slowdown in revenue growth. Customers contributing more than $100,000 in trailing 12-month revenue nearly doubled year over year to 2,507, while the number of customers it had that employed more than 10 people rose by 18% year over year to 512,100. 

Meanwhile, Zoom continues to release new features and updates for its platform to enable more customizable meetings. Examples include video voicemail for Zoom Phone, security and privacy updates, and the ability to share cloud recordings with specific people outside the organization.

Ricky Kapur, Zoom's head of Asia-Pacific, believes that three catalysts should drive the company's growth. The first is that companies are now more amenable to providing a hybrid work environment for their employees after seeing how it can be facilitated productively and inclusively. The second point is on consumer engagement, where companies look to provide convenience for their customers through videoconferencing. The final tailwind is businesses that are trying to tap new platforms for customer acquisition and are ready to use online consultations as a means to do so.

Zoom's growth surge at the start of the pandemic is tough to replicate, but the company should still post decent growth in the post-pandemic world.

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

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