The newly publicized security vulnerabilities of Zoom (NASDAQ:ZM), combined with the likely easing of the novel coronavirus crisis in a couple weeks and the meaningful competition the company is facing, do not bode well for Zoom stock at all. As a result, investors should avoid the shares.
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On April 5, The Washington Post reported that “thousands of personal Zoom videos have been left viewable on the open web.” A number of the company’s customers have also been plagued by harassment while using its software.
Further, Zoom has multiple links to China that have disturbed some of its customers because of the security implications of those links. And Zoom’s CEO has recently admitted that the company has had “some missteps” when it comes to security.
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The daily death total from coronavirus appears to have peaked at an average of around 1,200, versus the government’s previous expectation of 2,200 per day.
Given these trends, the mass closures in many American states and European countries are likely to be greatly eased soon, and many businesses will go back to working together in offices and holding in-person meetings.
As a consequence, the number of free trials of Zoom’s software that will be converted into paid subscriptions will be much lower than expected, hurting Zoom’s business and putting a tremendous amount of pressure on Zoom stock.
Microsoft’s (NASDAQ:MSFT) Teams software offers group video conferencing, as does Webex, which is owned by Cisco (NASDAQ:CSCO). And many other companies, including GoToMeeting and join.me, enable video conferences.
Meanwhile, Zoom stock has a gargantuan price-sales ratio of 55. I’m pretty sure that that is by far the highest P/S ratio that I’ve ever seen.
The Bottom Line on Zoom Stock
With the coronavirus crisis headed towards an earlier than expected ending and concerns about Zoom’s security issues rising tremendously, usage of Zoom is likely to plummet in the coming weeks and months.
Further, the company’s security issues will probably cause it to lose market share to its many competitors. And given the ridiculously high valuation of ZM stock, the company’s share price will almost definitely tumble as well. Given all of these points, investors should take their profits in Zoom stock now.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not hold a position in any of the aforementioned securities.
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