Until flaws regarding Zoom’s (ZM) security started botching its mercurial ascent, you could argue the videoconferencing platform was the out and out tech success story in these pandemic driven-times. The app’s popularity has shot up, with everyone, from families to businesses to schools using the service to communicate and stay in touch. Even taking into consideration the recent pullback, the stock is up by a very impressive 80% year-to-date.
Since the onset of COVID-19, Zoom’s daily average users have increased by a multiple of 20 and have left it unprepared for growing concerns regarding the platform’s safety. The issues relate to alleged user data breaches alongside news that hackers have been taking advantage of security flaws to execute "Zoom-bombing" attacks on the platform. Zoom has said that for the next 90 days it will use its engineering resources to address the trust and security issues, with the development of new features left to a later date.
Adding to the sudden change of sentiment towards the people’s current choice of communication, is the recent unveiling of RingCentral’s new videoconferencing offering, RingCentral Video. Not only will the new service act as a rival to Zoom, but there’s a further twist; Zoom, who until now have been RingCentral’s primary video supplier, stand to lose a top client.
Needham’s Richard Valera notes that although the new introduction had been anticipated for some time, it is nevertheless “still a negative headline.” However, RingCentral plan on honoring its long-standing contract with Zoom, with RNG customers able to choose Zoom as an option until the contract expires.
Valera said, “While we see RCV as a very capable product, our most notable takeaway for ZM was that RNG has "multiple" years remaining on its ZM contract and will continue to offer ZM to new and existing RCO users during this time, suggesting a minimal near-to-medium term financial impact on ZM… While neither ZM nor RNG have ever financially quantified their agreement, we believe RNG currently represents a LSD% of ZM's revenue.”
All in all, Valera reiterates a Buy rating on Zoom shares, along with a $140 price target. The implication for investors? Possible upside of 14%. (To watch Valera’s track record, click here)
Turning to the rest of the Street, Zoom’s Moderate Buy consensus rating breaks down into 6 Buys, 11 Holds and 2 Sell ratings. The average price target, though, is $113, implying 8% downside, and suggesting the Street might think Zoom has soared enough for now. (See Zoom price targets and analyst ratings on TipRanks)
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