Zoom security issue a 'legitimate reputational risk' as shares drop
Shares of Zoom Video Communications Inc fell 8% on Monday, adding to their sharp declines in the past few days, as the video conferencing app battles privacy concerns and increased competition from deep-pocketed rivals.
The stock had surged to a record high in March as demand for the app skyrocketed with millions of people around the world using it for everything from school lessons to business meetings amid lockdowns imposed to slow the spread of the coronavirus.
But multiple reports last week that questioned the company's data privacy practices have spooked investors, erasing nearly a third of the company's market value from its record high.
The stock was last down 7.9% at $118.05 on Monday and was the worst performer on the Nasdaq.
Brokerage Credit Suisse downgraded Zoom stock to "underperform" from "neutral". Analysts on average rate the stock "hold", according to Refinitiv data.
"While implied new customer growth may seem undemanding compared to recently disclosed 20x participant growth, we expect much of the recent surge will prove ephemeral, and/or comes from free users or education, which are very difficult to monetize," Credit Suisse analysts wrote in a note.
Last week, at least two U.S. state attorneys had sought information from Zoom following reports that questioned its privacy and security.
Some school districts in the United States have started to ban the app for online learning from home because of growing security concerns, the Washington Post reported on Saturday.
Reuters also reported last week that Elon Musk's rocket company SpaceX had banned its employees from using Zoom, citing "significant privacy and security concerns."
Microsoft Corp said on Monday its Teams platform, which competes with Zoom, does not use customer data for ads, and encrypts data to protect against cybersecurity threats.
While analysts believe that many issues with Zoom, especially those originating from user error, are likely to get solved in the short term, others could remain for some time.
"I think it's a legitimate reputational risk," DA Davidson analyst Rishi Jaluria said, adding a surge in Zoom's consumer user base could be a challenge as it was originally built to be an enterprise tool.
Zoom's daily users ballooned to more than 200 million in March from a previous maximum total of 10 million, Chief Executive Officer Eric Yuan said last week.
Microsoft's Teams had 44 million users globally as of March 18, doubling from what it reported in November.Reuters