Why Is Zoom’s Stock Dropping?

Despite its meteoric rise since the COVID-19 pandemic began, Zoom Video has come under scrutiny this week due to security concerns over ‘zoombombing’

If you were to ask any of your friends or family two months ago if they’d ever heard of Zoom (NASDAQ: ZM), the answer would probably be no. One pandemic later, however, and it is one of the few weapons we as a civilization possess against the ever-looming threat of isolation-induced madness. 

Whereas it took years for companies such as Apple (NASDAQ: AAPL) and Facebook (NASDAQ: FB) to become popular, grow a following, and eventually become embroiled in privacy scandals, Zoom has managed to do so in a matter of weeks. 

Having grown more than 60% since it was added to the MyWallSt family back in January, Zoom was soaring to new heights. That is until this week when a litany of privacy concerns began plaguing the video-conferencing software. Four straight days of losses have seen Zoom fall more than 15% in one week, and 11% on Thursday alone.

What is ‘zoombombing’?

As our head analyst Rory put it: 

“Going from a relatively unknown B2B enterprise software company to “zoombombing” in 3 months is quite the achievement.” 

In recent days Zoom has been the subject of numerous attacks from hackers, forcing regulators and even the FBI to step in. The brief market-darling of Wall Street has faced a backlash from law enforcement and politicians alike, as hackers drop in and out of people’s private calls, sometimes taking personal information (allegedly).

If that wasn’t enough, on Monday, March 30, the first of many lawsuits against Zoom was filed in California, claiming that the company gave personal user data to Facebook and other companies without informing customers. 

From indispensable tool to public enemy number 1 in less than a week; not even Zuckerberg himself could pull that one off.  

It is not the only victim of a hack-attack lately. As more people are forced into a pale, sunless, isolated existence separated from one another, all kinds of apps and tools have popped up, including ‘Houseparty’. The app has reportedly been subject to a number of cyberattacks, with many people claiming they’ve had account passwords and even bank details compromised by the app. Of course, ‘Houseparty’ responded in a perfectly reasonable and mature manner: pinning the allegations as corporate espionage and offering a $1 million bounty to bring down those responsible. 

Sounds like something from Netflix’s (NASDAQ: NFLX) ‘Tiger King’. If you haven’t watched this, I suggest you do so.

Is Zoom’s drop warranted?

Yes and no is my infuriatingly democratic answer. 

On the one hand, there is no reason to single out Zoom as an unsafe tool because it was hacked. Facebook accounts are hacked daily, Twitter (NYSE: TWTR) has experienced some high-profile hacks in the last year, and competing tools such as Skype have been hacked in the past too. Zoom will handle it, as any company would. They have even announced a freeze on all new features just to focus on fixing privacy concerns. 

What is worrying, however, is the allegation that it has been giving consumer data to the likes of Facebook. That’s a big no-no these days and could land them in similar hot water to Facebook during the Cambridge Analytica scandal. Zoom may be forced to spend billions in legal fees, security measures, and fines. For now, we need Zoom, and I couldn’t tell you how many virtual table quizzes I’ve been invited to lately, but if a more secure competitor crops up, it could spell trouble. 

Even Skype is up 70% in daily usage lately.

Is Zoom still a solid investment?

It could be early days yet, but should Zoom weather the current storm it finds itself in, it has a very long runway of growth to lift off from. Here are just some reasons that make it a great investment opportunity: 

  • Its financials are solid, with its recent earnings showing revenue of $622.6 million for fiscal 2019, more than quadrupling fiscal 2018. 
  • Software-as-a-service (SaaS) is having a moment thanks to the pandemic, with millions of at-home users jumping on products such as Zoom, Slack (NYSE: WORK), and Microsoft (NASDAQ: MSFT) Teams. This trend looks likely to be the way of the future too as companies prepare for the possibility of more pandemics and increased remote working. Businesses will also be looking to cut down on their carbon footprint, meaning business trips could soon become a thing of the past.
  • Customers like the software (although this might change following recent privacy breaches). In the space of 3 months, it has gone from 10 million to 200 million daily users, with March usage alone jumping nearly 200%.

Here at MyWallSt we use products like Zoom and Slack on a daily basis, and are far from the largest company doing just that.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.