Dreamstime
stock has tumbled 45% since an October peak, after an astonishing rally powered by the widespread adoption of the company’s services during the Covid-19 pandemic as we all switched to working, learning and socializing from home. The reversal reflects both concerns that growth will slow as the economy reopens, and worries that that the company’s stock-market valuation had simply gotten out of hand.
Daiwa Capital Markets analyst Stephen Bersey fears Zoom (ticker: ZM) stock is headed for lower lows. On Wednesday, he picked up coverage of the company with a Sell rating and a $250 target price, based on a target multiple of 19 times expected sales for the January 2023 fiscal year.
Bersey notes that as of Monday’s close at $308.39, Zoom stock was trading at close to 23 times expected fiscal 2022 sales, which he says gives the stock a 244% premium to the 6.6 times multiple for the average internet stock.
“The company’s recent success was positively influenced by many external factors tied to the rush-to-remote wave that hit the marketplace due to the Covid-19 global pandemic,” he writes in a research note. “In the same way, as Covid-19 begins to fade, we believe that the company may not be able to materially counter many of the negative external factors that may dampen demand that was previously stimulated by the pandemic…we see a significant near-term risk for revenue contraction, and—at a minimum—we have a low-level of conviction in our ability to accurately forecast near-term demand for Zoom given the unpredictable nature of Covid-19.”
Bersey projects fiscal 2022 revenue will grow close to 50%—but for fiscal 2023, he sees significant deceleration, and models just 0.6% growth—in effect, no growth at all. He sees revenue of $3.97 billion in fiscal 2022—and $4.00 billion in fiscal 2023.
Bersey advises investors to take profits. “Although we like Zoom’s products and success, we recommend that our clients sell shares of Zoom until the long-term implications of a fading Covid-19 pandemic are better understood,” he writes.
Amid a broad market rally on Wednesday, Zoom stock is up 3.1%, to $323.01.
Write to Eric J. Savitz at eric.savitz@barrons.com
