Citi doesn't like what it sees ahead of Zoom's Aug. 22 earnings report.
The investment bank's tech analyst Tyler Radke slashed his rating on Zoom stock to Sell from Neutral on Tuesday, adding the stock is "high risk." The analyst sees the video-conferencing outfit's shares falling about 20% from current price levels.
"Zoom’s post-COVID growth trajectory has always been more challenging, given pull-forward dynamics, but we see new hurdles to sustaining growth including rising competition (Microsoft/Teams), macro-related weakness hitting small businesses and less critical spending categories and margin risk," Radke wrote in a new note to clients.
Zoom shares fell more than 3% in pre-market trading.
Radke cut his revenue estimates on Zoom by 2% for the second half of this year and by 8% for 2023, arguing that risks to Zoom's business are mounting despite the stock surging about 43% from its lows of the year in mid-May.
"Our recent survey work, conference takeaways and web traffic tracking suggests that headwinds are beginning to pile up," Radke explained. "This includes slower IT budgets with significant de-prioritization of UCaaS [conferencing as a service] and collaboration software, rising competition from Teams, while web traffic trends suggest significant declines y/y (-40%+ year over year). Zoom’s Online business looks particularly at risk, with 48% annualized churn rates in a good economic environment."
Radke thinks new Zoom phone — often touted by execs as a key growth driver — is "too small" to move the financial needle for the company. In turn, he added, more investor attention should be placed on slowing growth in Zoom's bread and butter video conferencing business.
Zoom sees its outlook quite differently.
In a May 24 interview with Yahoo Finance Live (video above), Zoom CFO Kelly Steckelberg struck an upbeat tone on the pace of the business.
"We've given outlook for this year for FY23 and we indicated our guidance of 11% year-over-year growth," Steckelberg said. "And when you look at the two segments of our business, that equates to 20% plus growth in our enterprise and flattish for our online segment of our business. And we're really thrilled about the outlook. What we've indicated is that there's going to be a transition period or an inflection point in Q4 of this year where we start to see acceleration of growth again."