Shares of Zoom are “washed out” as the video conferencing company undertakes a plan to transition its business, according to JPMorgan. “Our assessment is positive on Zoom’s underlying technology, continued innovation, and market position, and we are impressed by the cash-generative financial profile, though we believe these are offset by near-term growth and margin headwinds as Zoom pivots to optimize business mix and ramps spending to explore new avenues of growth as well as address competitive evolution,” JPM analyst Mark Murphy wrote in a Friday note. JPMorgan’s December 2023 price target of $85 implies about 8.5% upside from Thursday’s closing price of $78.35. The stock is down 0.8% in Friday premarket trading. Zoom came under pressure this year, following its initial burst of growth during the pandemic, as the teleconferencing platform faced increased competition from Microsoft and others. The stock is down 57% year to date, and is 73% lower than its recent high. Now, Zoom is reinvesting in research and development, as well as sales and marketing, to expand its business into chat, contact center and phone. Meanwhile, Murphy also highlighted the upcoming contract renewal cycle as a potential overhang on Zoom should it show slower client spending in a challenging environment. “Ultimately, while we believe in Zoom’s platform and long-term vision, this view is balanced by execution risk, a contract renewal cycle that may occur during a time of tightening budgets and evolving competitive landscape in a slowing macroeconomic climate,” read the note. Analyst Mark Murphy, who recently assumed coverage of the stock, gave a neutral rating to Zoom. (immediately prior, JPMorgan had not rated Zoom; before that, another JPM analyst had rated Zoom overweight). —CNBC’s Michael Bloom contributed to this report.
