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Zoom Video Communications Inc. shares stumbled Monday after one analyst downgraded the stock joining a backlash against the videoconferencing company as it deals with an unprecedented surge of users stuck at home in the COVID-19 pandemic.
Zoom ZM, -4.10% shares fell as much as 15% Monday to an intraday low of $108.53, while the broader market rallied more than 5%. Shares were last down about 7% after declining 15% last week, tied for the stock’s worst week in its nearly yearlong history.
Read: Zoom Video lurches from boom to backlash amid privacy issues, ‘Zoom bombing’ attacks
Even with Monday’s fall, Zoom is still up 75% for the year, compared with a 19% drop in the S&P 500 index SPX, +7.03% and a 13% decline in the tech-heavy Nasdaq Composite Index COMP, +7.32%.
Credit Suisse analyst Brad Zelnick downgraded Zoom to an underperform rating from neutral Monday and raised his price target to $105 from $95, on the basis that “the current share price embeds significantly greater conversion of free users than our upside model scenario.”
“We commend Zoom for being a superhero of the current health crisis, though our responsibility as equity analysts compels us to distinguish great companies from great stocks,” Zelnick said. In the long term, Zelnick said he believes Microsoft Corp.’s MSFT, +7.43% Teams video service “remains the most significant competitive threat.”
For more: In just one week, Microsoft adds as many users to its Teams software as rival Slack has in total
In a note titled “No good deed goes unpunished,” Bernstein analyst Zane Chrane, who has an outperform rating and a target price of $125, said Zoom’s shortcomings are getting disproportionate attention given the surge with which the company has had to deal.
Chrane said “it’s to be expected that any company that has a 20x increase in demand in 90 days will inevitably have some growing pains, if they can even provide the service at all, so it’s worth considering the full context of Zoom’s oversights and alleged transgressions.”
Zoom shares started dropping from their March 23 record close of $159.56 as the COVID-19-fueled rise in the service’s popularity exposed security concerns. Back in January, Check Point Software Technologies Inc. CHKP, +5.36% identified a flaw in Zoom that let intruders eavesdrop on meetings. While the flaw had been fixed, Check Point recently published guidelines on how Zoom users could better protect themselves while they used the service.
“Zoom’s exponential growth in usage has resulted in additional scrutiny of its technology, leading to a recent spike in security concerns,” Credit Suisse’s Zelnick said. “While many of these issues, especially those stemming from user error, will likely be resolved in short order, we anticipate others may linger for some time.”
On Friday, Zoom Chief Executive Eric Yuan responded to concerns that certain meetings had been allowed to connect to systems in China and that the company had failed to “fully implement our usual geofencing best practices.”
Those security concerns prompted New York City’s Department of Education to tell principal to stop using Zoom, suggesting they use Microsoft Teams or video services through Alphabet Inc.’s GOOG, +8.11% GOOGL, +8.28% Google Hangouts, according to a CNBC report.
Of the 25 analysts who cover Zoom, nine have overweight or buy ratings, 12 have hold ratings, and four have sell ratings, with an average price target of $118.90, according to FactSet data.
