Zoom shares slip over security concerns, rising competition

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The stock had surged to a record high in March as demand for the app skyrocketed with millions of people around the world using it for everything from school lessons to business meetings amid lockdowns imposed to slow the spread of the coronavirus.

But multiple reports last week that questioned the company’s data privacy practices have spooked investors, erasing over a third of the company’s market value from its record high.

Brokerage Credit Suisse (SIX:CSGN) downgraded Zoom Video Communications Inc’s stock to “underperform” from “neutral”. Analysts, on average, rate the stock “hold,” according to Refinitiv data.

“While implied new customer growth may seem undemanding compared to recently disclosed 20x participant growth, we expect much of the recent surge will prove ephemeral, and/or comes from free users or education, which are very difficult to monetize,” Credit Suisse analysts wrote in a note.

Last week, at least two U.S. state attorneys had sought information from Zoom following multiple reports that questioned its privacy and security.

Some school districts in the U.S. have started to ban the app for online learning from home because of growing security concerns, while the New York City Department of Education said teachers should instead work through Microsoft (NASDAQ:MSFT) Teams, Washington Post reported on Saturday. (https://wapo.st/3dXg94z)

Reuters also reported last week that Elon Musk’s rocket company SpaceX had banned its employees from using Zoom, citing “significant privacy and security concerns.”

While analysts believe that many issues, especially those originating from user error, are likely to get solved in the short term, others could remain for some time.

“Encryption concerns have already caused some high profile customers to curtail Zoom usage, and we expect others could follow though the majority of organizations likely have no issue,” Credit Suisse analysts said.

The company’s daily users ballooned to more than 200 million in March from a previous maximum total of 10 million, Chief Executive Officer Eric Yuan said last week.

Microsoft’s Teams, which competes with Zoom, had 44 million users globally as of March 18, Microsoft said last month, more than double the 20 million daily active users it reported in November.