Zooming To Failure
Let’s call it what it is – a one-hit wonder.
Zoom Video Technologies (ZM) was the darling of 2020 as we idled in our homes and succumbed to digital use if we liked it or not.
ZM became the hot item because they had an edge in the video conferencing product and their stock price boomed as we were all hooked on their software.
Fast forward to today and ZM CEO Eric Yuan wishes conditions were similar to 2020 so he can somehow combat the growth of Microsoft Teams which is essentially the same product as ZM but offered for free from competitor Microsoft (MSFT).
Teams keeps adding new features and when the inflationary monster disrupts the balance sheet too much, enterprises stop paying for ZM.
ZM is having a tough time battling it out with free software.
The company also cut its annual revenue forecast, saying it’s losing sales from consumers and small business faster than anticipated.
Zoom’s breakneck growth during the pandemic has cooled considerably as offices reopen and other software copycats take shape.
Online sales to consumers and small businesses are expected to decline 7% to 8% this year, Chief Financial Officer Kelly Steckelberg said on a conference call.
Zoom has responded by intensifying its focus on larger enterprise clients and pitching an expanded line of products such as software for customer contact centers.
In June, the company unveiled a new service bundle, Zoom One, to highlight offerings like internet-connected phones and physical conference rooms.
I’m not positive on these secondary offerings, particularly Zoom Phone, and see few use cases for it moving forward.
Sales to enterprise customers are expected to grow by more than 20% this year.
The company also reduced its annual sales forecast to about $4.4 billion from its May projection of as much as $4.55 billion. About $115 million of the cut is due to the “broader economic environment” and $35 million is due to the stronger US dollar.
ZM has effectively glamorized Facetime on the computer and the bad news is that there is no moat around this proprietary technology.
Zoom Phone is literally Facetime with no computer.
Good luck finding the incremental client.
This is the reason for big tech catching up to ZM so quickly and after relinquishing their first mover advantage, there has been no second act or even 1.5 act. It’s a quickly eroding wasteland for the ZM brain trust.
Then the company referenced the “broader economic environment” as to reasons for a lower forecast confirming what many people already know that we are barreling straight into a 2023 recession and ZM will be a discretionary service that gets cut with ease.
Not even the newly crowned federal student loan forgiveness group will spend their new bonuses on this unneeded software.
To be fair, it hasn’t only been ZM that has been body slammed, the other lockdown darling Teladoc (TDOC) which specializes in remote health consultations is trading at 5-year lows.
The stock is almost 10X lower than at its point in February 2021.
Even if there’s an apocalypse, users won’t gravitate to ZM highlighting the outsized risks of a one-trick pony with no competitive advantage.
Stay away from this stock.
