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Zoom (NASDAQ:ZM) announced Tuesday that it is cutting about 1,300 jobs, or nearly 15% of its workforce, resulting in its share price gaining more than 9% on the day.
While the stock has fallen around 3% so far on Wednesday, Wall Street analysts remained Neutral on the stock, despite the move.
Wells Fargo analysts said Zoom’s headcount reductions signal margin expansion is ahead.
“We’re expecting the change to potentially yield $200-300M of cost savings in FY24, which could add a material boost to op margins in FY24 vs. current ests,” wrote the analysts, who maintained an Equal Weight rating and $80 price target on the stock.
At BTIG, analysts told investors that the positive long-term structural changes are offset by near-term headwinds.
“We view this as a necessary correction for ZM to finally rightsize itself for a world where most employees are working in hybrid environments, companies are looking to cut costs, and firms are under increased scrutiny for responsible growth,” said the analysts. They added that Zoom’s management made a tough, yet critical decision, to “set itself up for greater cash flow generation and coming to terms with a more realistic long term growth environment.”
Finally, Morgan Stanley analysts maintained an Equal-Weight rating on Zoom, telling investors in a note that the company’s workforce optimization is a “step in recovering operating margin degradation over the past year for the company.”
“Given heavily negative sentiment on the name, we see this focus on cost discipline as a positive for the name, but remain EW as we remain cautious on growth potential near term, particularly FQ1,” stated the analysts.
