Zoom slips as Citi downgrades, citing 'new hurdles to sustaining growth'
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Zoom Video Communications (NASDAQ:ZM) shares slipped on Tuesday as investment firm Citi downgraded the software company, citing "new hurdles to sustaining growth," including increased competition from Microsoft (NASDAQ:MSFT).
Analyst Tyler Radke lowered his rating on Zoom (ZM) to sell from neutral, adding that it is "high risk," noting that after the pandemic, the company's trajectory for growth has always been "more challenging," but more issues have cropped up, namely Microsoft (MSFT) and Teams, as well as macro economic weakness hitting small and medium businesses and margin risk.
"Although new SKUs such as Phone are promising, we believe increasing churn in [small and medium business]/online, and rising competition in enterprise will more than offset new product strength and drive estimates below consensus," Radke wrote in a note to clients.
Zoom (ZM) shares fell more than 3% to $109.65 in premarket trading.
Radke also lowered his revenue and free cash flow estimates for fiscal 2024 to be 8% and 17% below Wall Street estimates. Free cash flow is likely to decline due to ongoing investments in the company and working capital.
Lastly, given Zoom's (ZM) 43% move "off the recent lows" seen in mid-May, Radke said shares have "downside" at current levels.
On Monday, it was reported that hedge fund Tiger Global Management exited its stake in Zoom (ZM) during the second-quarter, along with several other changes to its portfolio.
Analysts are mostly cautious on Zoom (ZM). It had an average rating of HOLD from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates ZM a HOLD.