Why Zoom Video Stock Is Missing From Today’s Stock Market Rally
The stock market rallied on Monday and the Nasdaq is up nearly 5% by late morning. Yet one of the hottestcoronavirus stocks— companies that investors have so far deemed immune to the ill effects of the virus — is down.
Starting at 11:40 a.m. EDT, Focus on video communications (ZM 0.78%) shares are down 7.8%. Why?
For the answer, we turn to today’s pages The Washington Post, which reports that “some school districts across the country have begun banning the use of Zoom for home-based online learning.” These bans come in response to a warning from the FBI about the phenomenon of “Zoom-bombing— criminals hijacking Zoom conference calls and inserting themselves into meetings.
A few days after the FBI issued its warning, reports the Job“The New York City Department of Education, which operates the nation’s largest school district, said teachers should no longer use Zoom” and should instead use Microsoftit is (MSFT -0.92%) Teams software for online collaboration and video conferencing.
Clark County Public Schools in Nevada is also disabling Zoom access among its students and teachers. The Alpine School District in Utah is “re-evaluating” its use of Zoom, the Edmonds School District in Washington state is tightening security measures within Zoom, and “some elementary school teachers” in Los Angeles are stopping using Zoom. ‘to use Zoom on their own initiative, also reports the Job.
Is this all a storm in a teapot, a concern that can be easily erased as teachers new to Zoom become familiar with how to use their security settings to keep intruders out of their rooms? class online? Maybe.
In the meantime, however, the negative PR surrounding Zoom stock is growing, and Zoom stock is trading at a staggering 1,300 times trailing earnings – and even 53 times trailing revenue. Even for tech stocksthese numbers suggest that these stocks were priced to perfection.
The fact that Zoom turned out to be even slightly less than perfect therefore implies that the shares deserve to fall.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a board member of The Motley Fool. Rich Smith has no position in the stocks mentioned. The Motley Fool owns shares and recommends Microsoft and Zoom Video Communications and recommends the following options: January 2021 $85 long calls on Microsoft, January 2021 $115 short calls on Microsoft, and May 2020 $120 short calls on Zoom Video Communications. The Motley Fool has a disclosure policy.