What happened
Zoom Video Communications (ZM +2.25%) shareholders lost ground to the market this week. The stock fell 14% through Thursday trading, compared to a 0.7% decline in the wider market, according to data provided by S&P Global Market Intelligence.
The slump added to a difficult year for owners of the video communications specialist, whose shares had soared through earlier phases of the pandemic. In contrast to those prior gains, the stock is down over 50% so far in 2022.
This week's decline came after the company posted surprisingly weak second-quarter results.
So what
Management on Monday revealed that Zoom's sales landed at $1.1 billion for the selling period that ended in late July. While that result marked the company's fifth consecutive quarter of sales over $1 billion, it translated into just 8% growth year over year. Executives had predicted a stronger Q2 showing, leaving Wall Street disappointed.
The shortfall mainly came from Zoom's online segment, which caters to small and medium-sized accounts. These customers are largely leaving the platform after having relied on it through earlier phases of the pandemic for events like meetings, classes, and group chats.
At the same time, Zoom is still growing its enterprise business at a solid clip. Sales to its largest customers were up 37%, in fact.
Now what
Zoom reduced its 2023 financial outlook, which is the key reason why shares were pressured this week. The company is now expecting the online segment to shrink by about 8%, leading to roughly $4.4 billion of sales rather than the prior forecast of roughly $4.5 billion.
Investors seeking exposure to the digital transformation trend might consider adding Zoom to their watch lists, given that the stock price slump seems disproportionate to that modest downgrade. If the tech company can continue adding value to its communication platform, it should return to faster growth soon.
In the meantime, it is solidly profitable and generates plenty of cash. These resources should help management make bold growth bets over the next several quarters.
