Zoom shares slide as Facebook discloses plans for a video chat product

The videoconferencing company's shares have jumped more than 130% this year

In this photo illustration a Zoom App logo is displayed on a smartphone on March 30, 2020 in Arlington, Virginia.  The Zoom video meeting and chat app has become the wildly popular host to millions of people working and studying from home during the coronavirus outbreak. / AFP / Olivier DOULIERY

In another winning week, shares in Zoom Video Communications ended on a sour note after Facebook disclosed plans for a competing video chat product.

The news sent Zoom shares tumbling, eventually closing with a decline of 6.1 per cent on Friday. Still, the stock managed to gain more than 5 per  cent for the week, fuelled by a surge in users who have embraced the video-conferencing software for work and socialising while confined to their homes.

Zoom’s shares have jumped more than 130 per cent this year, vaulting the company into the ranks of some of the most valuable US companies. At $44 billion (Dh161.5bn), Zoom’s market capitalisation is now bigger than nearly three-quarters of the companies in the S&P 500 Index.

Investors have flocked to Zoom with much of the world home-bound to combat the spread of the novel coronavirus. On Wednesday, Zoom reported a 50 per cent jump in users in the past three weeks.

Along with Zoom’s success has come headache, with the San Jose, California-based company facing backlash over privacy and security concerns that prompted an apology from chief executive Eric Yuan and moves to make the platform more secure.

In a challenge to Zoom, Facebook said the goal of its new video platform, which will allow as many as 50 people per chat, was to offer users a more social and less corporate feel than what’s currently available.

While Zoom already faced plenty of competition before Facebook joined the conversation, the news served as a reminder that the stock had a lot of optimism baked in as several analysts have recently warned.

JP Morgan on Thursday said that the current surge in users won’t necessarily result in a similar increase in revenue as many participants are using a free version. Last week, BTIG said Zoom is priced to “perfection” and warned of risks from security concerns.

Zoom’s valuation multiple has soared this year along with its share price. The stock is trading at around 29 times revenue over the past 12 months. That’s more than four times the average of the 96 companies in the S&P North American Technology Software Index.