Shares of Zoom Video continued their slide toward fresh pre-pandemic lows Thursday, after Piper Sandler analyst James Fish reluctantly downgraded the videoconference services company, citing limited potential upside and lack of free cash flow growth.
fell 1.9% in afternoon trading, and have now tumbled 23.6% amid a six-day losing streak. It was on track for the lowest close since Jan. 31, 2020, or about six weeks before the COVID-19 outbreak was declared a pandemic.
Fish cut his rating to neutral, after staying at overweight (OW) since March 1, 2021, even as the post-pandemic recovery led to an 80% plunge in prices since the turned bullish. He slashed his stock price target to $96 from $157.
In note with “Got to know when to fold them” in its title, Fish admitted he was late in downgrading the stock, and acknowledged there was a risk of “calling a bottom in shares given valuations in tech appear oversold.”
Fish said his bullish thesis was based on the post-COVID-19 sustainability of Zoom Video’s offering, and adjacent products such as Zoom Phone and OnZoom. But now, he sees limited upside to paid video with adjacent products and too much commercial and small and midsize business (SMB) exposure.
And with the slowdown in revenue and management guiding to lower margins, Fish expects free cash flow (FCF) to be pressured and down through fiscal 2024, suggesting consensus analyst estimates through then are “likely too high.”
Therefore, Fish sees “limited risk-reward” at current stock prices. And even if growth stocks return to market favor, he sees stronger upside in other names.
Zoom Videos stock, which rocketed 395.8% in 2020 as the poster child for COVID-19 beneficiaries, has been mostly sliding ever since, expect for a brief bounce in mid-2021 as COVID-19 cases surged. The stock was now trading 79.3% below its July 6, 2021 closing high of $401.12, and 85.4% below its Oct. 19, 2020 record close of $568.34.
The company is scheduled to report fiscal first-quarter results on May 23, after the closing bell. Since the end of its fiscal fourth quarter on Jan. 31, the stock has dropped 46.1% while the S&P 500 index
has shed 14.5%.