Why Zoom Stock Got Trounced by the Market Today | The Motley Fool

Why Zoom Stock Got Trounced by the Market Today | The Motley Fool

What happened

These days, investors need good and convincing reasons to invest in the tech sector. On Thursday, with teleconferencing bellwether Zoom Video Communications (ZM -4.12%), they didn’t get any. A new and rather lukewarm analyst take on the company didn’t do its stock any favors, and its price slid by over 4% on the day.

So what

Before market open, Wedbush’s Taz Koujalgi initiated coverage on Zoom. Don’t expect to see him loading up on the stock anytime soon, though, as his recommendation on the shares is neutral, at a price target of $80 per share. 

His caution is based on potential competition and pricing pressure amid concerns that certain competitors, such as tech behemoth Microsoft might be planning to bundle teleconferencing services into their existing products.

Zoom took off as a company and as a stock during the coronavirus pandemic, as in-person meetings became prohibitive, and its core services offered a solid and distanced alternative. Before long, the company’s name was almost a synonym for any kind of teleconferencing.

With the state of technology these days, however, the barriers to entry in that segment aren’t particularly high. And given Zoom’s sudden and sharp success, it was inevitable that Microsoft and others were bound to eye its segment with the aim of grabbing market share.

Now what

On top of this, it almost goes without saying at this point that many investors are giving tech stocks, in general, the cold shoulder. For many companies in the sector, unless there is outstandingly good news — such as a monster earnings beat — their prices continue to be depressed. We shouldn’t expect much life, then, in Zoom and other tech titles in the proximate future.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Zoom Video Communications. The Motley Fool has a disclosure policy.

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