Zoom To Suspend Direct Sales In China, Switch To Partner Model

Popular video-conferencing company Zoom Video Communications said it will halt direct sales to customers in mainland China and instead offer its products through local third-party partners.

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Zoom (ZM) informed customers that the shift will take effect from Aug. 23 and asked users to turn to its China-based partners Bizconf Communications, Suirui Zhumu Video Conference and Systec Umeet, which are using its technology, according to an e-mail seen by Reuters.

“Our go-to-market model in Mainland China has included direct sales, online subscription, and sales through partners. We are now shifting to a partner-only model with Zoom technology embedded in partner offerings, which will provide better local support to users,” the company said in a statement on its website.

Back in May, Zoom announced that it is suspending free individual user registrations in mainland China to meet local regulatory requirements.

The company has in the past been criticized by the US for weaknesses of the encryption keys of its video conferencing service. It was found that during multiple test calls in North America keys for encrypting and decrypting meetings transmitted to servers in Beijing, China. Zoom admitted that it had “mistakenly” allowed calls to flow through China, adding to a number of mis-steps raising doubt on the security of the platform.

The video-conferencing platform has been coping with increased traffic, as millions of users flocked to use its technology to host business and social meetings and during the lockdown affecting many countries around the world. The user boom has helped Zoom shares jump 295% this year. The stellar rally has left most analysts cautiously optimistic on the stock as they are waiting to see if the user boom is sustainable post Covid-19.

Stephens analyst Ryan MacWilliams last month raised ZM’s price target to $220 from $180 saying that the company is “experiencing strong performance across almost all segments while driving towards its goal of becoming the standard within the relatively under-penetrated enterprise cloud video/voice market”.

Nonetheless MacWilliams maintained a Hold rating on the stock as he believes most of Zoom’s elevated growth is priced into the stock.

“We continue to believe Zoom will grow into its valuation through viral customer adoption, platform breadth expansion, and conservative Street estimates, which pave the way for a large magnitude of forward revenue revisions,” MacWilliams wrote in a note to investors. “However, we need additional evidence of Phone/Rooms adoption to delineate Zoom as the enterprise communications standard before becoming more constructive.”

Overall, the stock shows a Moderate Buy analyst consensus. This breaks down into 11 Buy ratings, 8 Hold ratings and 2 Sell ratings. The $229.83 average price target implies 15% downside potential from current levels. (See Zoom stock analysis on TipRanks)