Zoom Video Drops 8% After Salesforce Sells Off Stake

Zoom Video Communications plunged almost 8% after Salesforce divested its entire stake in the popular video-conferencing company.

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Zoom (ZM) shares dropped to $231.04 at the close on Tuesday taking its five-day decline to 14% as Salesforce disclosed in a regulatory filing that in the second quarter it sold all of its 2.8 million shares it owned in Zoom. The divestment comes after Zoom shares rallied 239% this year.

According to the SEC filing, Salesforce (CRM) maintained its holding in software company SurveyMonkey.

Zoom has benefited from a user boom as millions of users flocked to use its technology to host business and social meetings during the global lockdown. However, as the video-conferencing platform company has been coping with increased traffic, it has also 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 company this month announced that it will halt direct sales to customers in mainland China from Aug. 23.

With the stock down 11% over the past month, Wall Street analysts have a cautiously optimistic outlook on the shares. The Moderate Buy consensus breaks down into 11 Buy ratings, 8 Hold ratings and 2 Sell ratings. (See Zoom stock analysis on TipRanks)

Meanwhile, 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.”

Following ZM’s strong rally this year, the $229.83 average analyst price target implies shares are now fully priced.