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Zoom stock slides after Citi downgrades shares

Yahoo Finance Live anchors discuss the slide in Zoom stock after Citi downgraded its shares.

Video transcript

JULIE HYMAN: We got a couple of calls of the day today for you. Let's start with the downside. A downgrade for Zoom from Citi ahead of the company's earnings call. And you've been digging into this one, Sozz.

BRIAN SOZZI: Dig, dig, dig. Yes, the folks at Citi, Tyler Radke, the tech analyst, lowering his rating to sell/high risk. Can't leave that high risk out there. Price target of 91, looking for about, I'd say, a 15% downside from current levels, really talking about concerns about the health of small businesses, potentially pulling back, and that impacting Zoom. Small businesses are a key part of Zoom's business.

And then also just saying the Zoom Phone, which Zoom has talked up a good length on earnings calls and its various earnings releases, maybe not being that big of a business to offset what will be a likely continued slowdown on that core video conferencing business.

BRAD SMITH: Yeah, absolutely. And the core video conferencing business, you could imagine, saw the biggest pull forward in demand of any of the pandemic darling stocks that we were tracking over the course of the early onset of the pandemic and even thereafter once you started to get into the year over year comps. And so now it's a big question of growth. Now also, how in the retention part of that conversation, too, do you ensure that there's not so much churn to the point where you've disrupted the baseline revenue mechanisms that have already been set in?

And for Zoom, they're still competing in an extremely competitive landscape with Microsoft. They beefed up their offering. Of course, Google as well with the cloud and collaborative suite that they offer to so many of their corporate customers. And so it's not an easy landscape to not see churn right now if you are a Zoom. But it's the additional offerings that perhaps they hung a little bit too much of their hat on.

JULIE HYMAN: What I keep being struck by during this period as we come out of the depths of the pandemic is how we continue to be sort of surprised by things that we already knew that were coming. In other words, like, we look at Zoom, and there was a lot of talk about how it was a pandemic beneficiary, like so many other stocks were and that it was going to start to slow. And it's slowed, and yet the stock has been certainly punished for that.

You look at what we're seeing in terms of consumer trends, in terms of-- we knew that a lot of that was pull-forward into the pandemic time, because people were home, because people were getting checks. And yet, there is still this surprise and this discovery and this rerating that's happening. I mean, I guess it's logical, and that would happen, but still.

BRIAN SOZZI: Yeah, Zoom missed an opportunity, and this is not going to be popular, but they missed an opportunity to sell themselves. Look we saw during the pandemic. We saw Slack sell out really at a very high valuation to Salesforce.

Now, we spent some time with Stewart Butterfield. He's the founder of Slack. He is now working hand in glove with Bret Taylor, who's co-CEO of Salesforce, to better integrate this platform and just give consumers more of a complete offering under that Salesforce umbrella. You mentioned Teams. Well, Teams is part of the beast that is Microsoft. Now you have Zoom out here.

JULIE HYMAN: Right.

BRIAN SOZZI: Zoom Phone and its conferencing platform. I mean, the stuff is great, but still, should it be part of a larger platform? Because that's how its competitors are going to market. And they appear to be winning maybe at a faster clip.

BRAD SMITH: Yeah, and it was really dependent upon whoever that acquirer would have or may have been kicking the tires, how much and how adamantly they felt about Zoom actually getting some of its privacy concerns. The Zoom bombing viral kind of moments that have taken place over the course of the pandemic just went to show that they couldn't handle that type of volume. And that particularly was probably one of those headwinds, too.

JULIE HYMAN: And then our bonus quick one is PayPal, which was upgraded over at Daiwa. Visa and Mastercard, by the way, also being downgraded as part of this. It's not helping those PayPal shares today, but the Daiwa analyst says that the payment sector overall is set for high growth over the medium and longer term. But in the short-term here, could see some benefit for PayPal here. The company has been doing some cost cutting, of course. Has gotten the attention of Elliott Management as well. So those are some potential positives for the stock.

BRIAN SOZZI: Yeah, look, on PayPal, you're just, I think, still seeing a lot of optimists on this name. But they just announced $900 million in cost cuts. That will have a large, I think, cultural effect inside the company. There's going to be a lot of things that PayPal is just not going to be working on for some time or if not ever again. But look, I mean, you saw the Street really continue to be optimistic on this company. But a lot of change is coming for PayPal over the next 12 to 18 months.

BRAD SMITH: PayPal and Square are both doing so much to try and acquire license to act like a bank, to be more like a central kind of repository that people could come back to for their finances, at least in some facets or another working more so with the small businesses as well to manage that.

And so with that in mind, it still comes back to a lot of that customer lifetime value that they're going to see from the younger tier of consumer, whether that's, in Square's case, Cash App, or whether for PayPal, that's Venmo. And Venmo, particularly over this last quarter, even though the volume gains, it's the user growth that has started to slow. And I think that's what investors have also been latching on to most recently here, too.

BRIAN SOZZI: And importantly, last note here, Venmo not profitable, not making money yet. All right, from payments to air travel, coming up, we'll fly into the state of the airline industry with former United Airlines CEO Oscar Munoz.