Why Zoom Video Communications Stock Is Tumbling Today

What happened

Shares of videoconferencing specialist Zoom Video Communications (NASDAQ:ZM) are slumping today.

The decline comes in the wake of news that a COVID-19 vaccine from Pfizer and BioNTech prevented over 90% of infections in human trials including tens of thousands of volunteers. Additionally, no serious safety concerns have been identified.

Some investors are betting stocks that benefited from people sheltering at home could now cool off if lockdowns ease amid a successful deployment of vaccines.

So what

Zoom was one of the biggest beneficiaries as consumers and workers sheltered at home. People turned to the platform to collaborate virtually, leading to skyrocketing revenue and profitability.

For the three-month period ending July 31, Zoom announced a 355% year-over-year increase in revenue. On $664.5 million of revenue, the company raked in $373.4 million of free cash flow. This was up from free cash flow of $17.1 million in the year-ago quarter. 

Given the growth stock has soared more than 500% this year, it’s not surprising to see shares selling off some as investors speculate about a return to more normalcy in 2021 and beyond.

Now what

Management said in its third-quarter update that it anticipated even greater fiscal fourth-quarter revenue. The company guided for record revenue between $730 million and $750 million during the period.

While a slowdown in Zoom’s growth story should be expected as the economy reopens, it’s unclear both how quickly vaccines can be rolled out to the masses and by how much the company’s growth will slow. Before the pandemic, Zoom was already notably expanding at near-triple-digit growth rates.

Original Article by Daniel Sparks

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