Zoom (NASDAQ:ZM) Stock Sputters With Planned New Offering

2020 was one downright baffling year for stocks. With some of the bluest of the blue chips taking a beating the likes of which couldn't have been dreamed of in the modern day, some stocks shot to prominence thanks to their ability to beat the problems that the coronavirus response caused. Zoom Video (NASDAQ:ZM) was one such company, and now, it's looking to take advantage of its newly-minted popularity by offering some newly-minted stock, a development investors aren't exactly pleased about.

One Big New Offering Incoming

Zoom isn't planning to do things by degrees here. The company plans a secondary stock offering that's poised to raise $1.5 billion when it goes fully live. The offering has already been underwritten, reports note, and the underwriter is likely to have a 30-day option to buy in at $225 million, minus applicable commissions and underwriting discounts.

Ultimately, reports note, an additional 4.45 million shares of Class A common stock would go up for sale, and the filings involved also leave the door open for the possibility of rolling out new debt securities along with the stock sale. As for plans for that big slug of cash, Zoom says it will be going toward “general corporate purposes.”

Despite losses in early trading—that briefly continued into today before recovering, losing ground again, and recovering again as of this writing—the company is still doing quite well on a longer-scale graph, with a gain of 27% over the last six months and around 350% over the last year.

A Hesitant Broader View

The wider consensus view from the analyst community, meanwhile, isn't quite so enthusiastic as those big gains suggest might be the case. Our latest research finds that the company is considered a “hold”, a status it's held for the last six months. The ratios making up that consensus are unchanged from last month, with two “sell” ratings, 11 “hold” and 13 “buy” going into the mix. That's changed somewhat from three months ago, where the company had two “sell”, 10 “hold” and 15 “buy,” and changed again from six months ago, where the mix was three “sell”, 10 “hold” and 12 “buy.”

Price targets also remain unchanged from a month ago, as the company remains at $435. Given recent declines in the company's stock price, though, that $435 represents a much larger upside potential today than it did just a month ago.

Is Demand Faltering?

Zoom rose to prominence by offering a low-cost—free in some cases—video conferencing system at a time in which it was illegal in many places to actually get people into a room physically. It's not out of line to say that Zoom video conferencing saved a lot of businesses out there from going completely moribund, and though it wasn't the only video conferencing option in the field, it was one that users turned to regularly to get the job done.

While Zoom users did have some difficulties—it was actually sued back in August over its security issues—it quickly became almost a de facto standard for getting people together to do business in the COVID-19 era.

Yet such a position in the field doesn't come without risks in its own right. Zoom just put a big target on its back by announcing to the world that this is one big market, and anyone who wants to get in is likely to find some success herein. A quick Google (NASDAQ:GOOGL) search finds reams of Zoom alternatives out there, including two from Cisco (NASDAQ:CSCO) and one from Google itself. There's also the issue of a declining coronavirus; with vaccines rolling out and some places getting at least somewhat back to normal, the need for readily-available video conferencing software might start to decline.

There will likely be some use for this going forward; plenty of businesses have seen how well telecommuting can work first-hand now, and with some minor modifications—like having physical meeting space available should it be necessary—it can go forward well. Though Zoom is likely in for a pullback—TradingAnalysis.com founder Todd Gordon is already on record as considering Zoom overvalued—in the near-term, it has made a name for itself as the vanguard of a resurgent telecommuting concept. The company's revenues are still solid and cash flow is positive, two solid measures of a healthy company.

The move away from telecommuting popularized by CEOs like Marissa Mayer of Yahoo fame couldn't survive 2020, and may not make much recovery in 2021. It might be a good time to let Zoom make its pullback, and buy in later on.