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A Citi analyst downgraded Zoom Video Communications (NASDAQ:ZM) to a “Sell/High Risk” rating (previously “Neutral”) and slashed his Price Target to $91 (previously $99), citing the “increasing churn” and “rising competition” as major headwinds to the company’s growth prospects.
The analyst, who was previously cautions of “Zoom’s post-COVID growth trajectory… given pull-forward dynamics”, now sees new and bigger “hurdles to sustaining growth” noting:
– “Rising competition (MSFT/Teams)”
– “Macro-related weakness hitting SMB and less critical spending categories”
– “Margin Risk”
He believes “increasing churn in SMB/online, and rising competition in Enterprise will more than offset new product strength”, leading to “significant estimate cuts with our revised revenue and FCF estimates 8% and 17% below the street in FY24E.”
The report models “revenue growth slowing into MSD next year, with FCF declining as a result of ongoing investments and working capital” and warns of further “downside given the +43% move off recent lows.”
Citi thus downgrades the stock to a “Sell/High Risk” rating and cuts the Price Target to $91 from $99.
Zoom Video Communications, once one of the biggest beneficiaries of the COVID-related work-from-home dynamic, has seen an over 80% drop from its pandemic highs, and a 40% loss YTD. The shares are trading another 3% lower in pre-market on Tuesday.
