Zoom Communications’ stock plummeted by over 5% on Tuesday as investors were underwhelmed by the company’s forecast of low single-digit annual revenue growth, a significant departure from its pandemic-era boom. The disappointing projection came despite a recent rally that saw the company’s shares surge 19% this month, which had lifted hopes of a sustained recovery.
The video conferencing giant is facing intense competition from rival services, including Microsoft Teams, which has put pressure on Zoom to expand its offerings and diversify its business. In an effort to boost demand, the company has introduced new products such as phone systems and artificial intelligence assistants, but so far, these initiatives have not been enough to offset the decline in growth.
On Monday, Zoom raised its expectations for fiscal year 2025 adjusted profit and revenue, and the midpoint of its new annual revenue expectation of $4.656 billion to $4.661 billion aligned with analysts’ average estimate of $4.66 billion, according to data compiled by LSEG. However, the forecast still fell short of investors’ expectations, and the stock price suffered as a result.
The midpoint of Zoom’s fourth-quarter revenue forecast was only $1 million above estimates, a narrow margin that did little to alleviate concerns about the company’s growth prospects. According to Piper Sandler analysts, “Even at this beat-and-raise cadence, the accelerating growth is potentially peaked or nearing it,” indicating that the company’s expansion may be losing steam.
A recent analysis of Zoom’s financial data revealed that the company’s yearly revenue growth rate is expected to average 3.1% for fiscal year 2025, 2026, and 2027, a significant decline from the 21.6% average annual growth recorded in the three fiscal years preceding 2025. This slowdown in growth has raised concerns about the company’s ability to maintain its market position.
In response to the changing market landscape, Zoom has rebranded itself from Zoom Video Communications to Zoom Communications, shedding the “Video” part of its name in an effort to signal its expanded offerings and shift away from its core video conferencing platform. A.J. Bell analyst Dan Coatsworth believes this move is a step in the right direction, stating, “Ditching the ‘Video’ part of its name should help the market and prospective customers realize the business is not the same as the one which thrived during the pandemic.” However, Coatsworth also acknowledged that the drop in Zoom’s shares was likely due to “profit taking after a very strong run ahead of the figures.”
