Zoom Stock Crash - Valuable Lessons & What To Expect Moving Forward

5 Lessons From Zoom’s Stock Crash & What To Expect Moving Forward

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Zoom Stock Crash - Valuable Lessons & What To Expect Moving Forward

It was a tale of two halves for the share prices of American communications software firm Zoom. Here’s all you need to know about the company and what you can expect from it moving forward.

Video conferencing tools were lifesavers throughout 2020 and 2021, facilitating gatherings for both personal and professional reasons. And despite folks heading back to the office more often as COVID-19 vaccination rates rise, businesses aren’t discarding these tools just yet.

Because which company won’t say no to saving valuable money and time spent on business trips?

One video conferencing tool that ended up becoming a literal and metaphorical household name is Zoom. It added over two million active users during the first two months of 2020 alone, which is more than the 1.99 million active users that joined across the whole of 2019.

Naturally, the Nasdaq-listed company’s share prices skyrocketed.

To be precise, it took only five months for its share prices to triple in value from US$65.81 at the start of 2020. Unfortunately, the final quarter of 2020 and whole of 2021 told a very different story as its share prices slipped and slid continuously.

Here are five lessons that you can learn from Zoom’s stock prices crashing and what you can expect from the company moving forward.

  1. Companies can be a victim of their own success
  2. You can’t predict what will happen in the stock market
  3. Improvise, adapt, overcome
  4. Don’t discount what your competitors will do
  5. Learn to let go (for investors)

1. Companies can be a victim of their own success

Although the narrative was always on Zoom’s stellar growth after COVID-19 forced individuals to remain indoors, it’s not as if the company was performing poorly before that.

From 2018 to 2019, its revenue and gross profit more than doubled. Additionally, its assets grew while liabilities dropped.

Finally, it became a publicly-listed company on 18 April 2019.

Zoom successfully defied naysayers who said that there were too many video conferencing tools in the market already. It even went on to hold an annual in-person conference from 2017 onwards to update users on everything that the company was working on, dubbed Zoomtopia.

Every edition featured keynote speeches by celebrities and entrepreneurs, to boot.

Unfortunately, COVID-19 came along and created inflated expectations among investors. For ten months in 2020, all was well and good as people relied heavily on tools that allowed them to work and study efficiently at home.

However, COVID-19 vaccines came along and everyone began to return to pre-pandemic routines.

It was natural that Zoom would then end up posting results that weren’t as favourable. However, the company was far from bleeding cash as its stock prices fell.

It was still experiencing quarter-on-quarter growth, only at a slower rate. These are figures that many startups or new publicly-listed companies wouldn’t mind at all.

Sadly, Zoom was a victim of its own success.

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2. You can’t predict what will happen in the stock market

TimeframeZoom’s stock priceZoom’s gross profit
Q2 2020US$109.57 – US$260.29US$471.3 million
Q3 2020US$230 – US$529.74US$508.4 million
Q4 2020US$336.10 – US$588.84US$615.2 million
Q1 2021US$305.78 – US$451.77US$691.2 million
Q2 2021US$275.80 – US$395.44US$760.2 million

The brightest minds out there can’t predict what will happen in the stock market, so it goes without saying that others need not try. As mentioned earlier, Zoom is still growing consistently every quarter while its stock price dropped.

That translates to customers streaming in while investors head towards the exit.

What gives?

A myriad of factors actually, which is why it’s so hard to pinpoint one specific event that has led to Zoom falling out of favour with investors. External events such as the troubles befalling China Evergrande Group and fears of inflation have a part to play in this.

Further complicating the situation are analysts not being unified on whether Zoom is still a good stock to buy.

This is why the phrase ‘do your own due diligence’ reigns supreme. Only you can decide whether Zoom is a good fit for your investment horizon, risk appetite, and portfolio.

The company certainly has no plans to rest on its laurels as it aims to grow even after COVID-19 is firmly in the rear view mirror.

Therefore, it’s easy to see why Zoom’s stock prices have dropped, given that the world is reopening. However, dig a little deeper into its balance sheet and you’d soon start to doubt that line of logic. That’s why it’s so hard to predict the stock market.

Always rely on your research and set goals for your investments.

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3. Improvise, adapt, overcome

Zoom certainly doesn’t need anyone to tell it this, considering that it entered a market which was already perceived to be saturated back in 2011. However, it became one of the most popular apps that businesses used by the fourth quarter of 2019.

It was sitting among established names like Google’s G Suite, Microsoft’s Office 365, and Salesforce.

A major contributor to Zoom’s success is its high level of accessibility. The company’s mission statement even reads, “Make video communications frictionless.” That’s why many businesses, schools, and individuals flocked to the app rather than established services like Skype or WebEx.

However, Zoom knew that it couldn’t just rely on its video conferencing tool if it wanted post-pandemic success. That’s why it attempted to acquire cloud contact centre software company Five9 in the second half of 2021.

Although the acquisition failed, Zoom is now developing its own solution named Zoom Video Engagement Center.

In fact, Zoom’s share prices rose slightly after news of the failed merger broke. It remains to be seen how the company will fare after 2021’s final quarter concludes, but it has several interesting projects in the pipeline.

Should these be rolled out successfully, Zoom will be able to transform its video conferencing tool into a true collaboration platform.

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4. Don’t discount what your competitors will do

Zoom’s success caused its competitors to sit up and take notice. They realised how important online collaboration tools are and improved on the services that they currently had.

Google Meet for instance, could see up to eight updates in a single month. Several of these updates include high-quality video and audio, a digital whiteboard, breakout rooms, and more.

Not forgetting Cisco, Microsoft, and other tech giants who wanted a slice of Zoom’s pie after its massive success. Several alternatives might prove to be more attractive than Zoom because they might already be part of an app that a company is currently using.

For example, business communication app Slack has built-in video and voice calling capabilities.

Furthermore, it didn’t help that Zoom’s perceived ease of use led to a number of high-profile security lapses. Take ‘Zoombombing’ for example. It’s bewildering to know that strangers could have such easy access to your meetings.

The landscape isn’t static, so Zoom has to stay on its toes if it wants to remain ahead of the pack. Currently, its challenge is retaining smaller businesses.

Additionally, it has to convince larger companies that it’s still the frontrunner in the video conferencing space and convert them to more valuable annual contracts.

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5. Learn when to let go (for investors)

There’s a time to buy and a time to sell. It’s easy for investors to hold onto a stock for far too long, hoping that it’ll achieve greater heights in the long run. This is a dangerous trap to fall into, especially when you’re holding onto stocks that perform best only under extremely specific circumstances.

These include other pandemic darlings like exercise equipment company Peloton and food delivery firms DoorDash and GrubHub. It was only a matter of time before their stock prices fell, especially after the first effective COVID-19 vaccines from the Pfizer-BioNTech collaboration and Moderna were approved.

There’s no doubt that your profit margins are still healthy if you sell off any Zoom shares that you have right now, especially if you invested early on in the pandemic.

However, you’re missing out on an additional US$100 to US$300 per share as compared to selling between September and December last year.

It’s true that you can’t predict what will happen in the stock market, but COVID-19 vaccines were looming large. Nations began to realise that completely eliminating the novel coronavirus via lockdowns and other social restrictions would not be feasible.

If you kept your finger on the pulse, you’d know when would be a good time to pull out and enjoy your profits.

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What can you expect from Zoom moving forward?

Zoom is gearing up for the new normal. Its video conferencing tool is poised to become a full-fledged collaboration platform, with features like live translations and transcriptions currently in the works.

What’s more, Zoom Whiteboard will allow for staff members to work on a digital whiteboard asynchronously. Integration with Facebook’s Horizon Workrooms is expected in 2022, allowing employees to utilise virtual reality for meetings in the same space.

Zoom’s tale of two halves has spawned several lessons that the company, other firms, and investors can learn from. Its stock prices might be taking a beating right now, but if the company plays its cards right, it might even cause firms to seriously reconsider their business travel policies.

If you’re still holding on to its shares, you’d do best to keep your fingers crossed.

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By Ebel Tang
A geek culture enthusiast who’s also a little too invested in the wide world of whisky and watches. And no, he was not named after the Swiss timepiece brand.