By Senad Karaahmetovic
Morgan Stanley analysts downgraded shares of Zoom Video Communications (NASDAQ:ZM) to Equal-weight from Overweight with a price target of $90 per share (down from $130).
The analysts believe that the performance of Zoom shares is closely tied to direct business performance, where they don’t expect to see an improvement until next year. Given the lack of catalysts, they cut the rating on ZM stock, sending shares nearly 3% lower in pre-open trading on Tuesday.
“We continue to think there is tremendous value in the enterprise platform ZM has built, something we expect to hear more about upcoming Zoomtopia. However, we believe this value will be difficult to realize while direct (Online) business normalizes post COVID and begins to incorporate a weaker macro environment,” analysts wrote in a client note.
The analysts would like to see signs of stabilization in direct business, as well as continued Enterprise growth, before turning more positive on Zoom shares again.
“We could be too conservative if the company were to post significant upside to our cash flow estimates. Alternatively, we could be proven too positive if FX and direct business headwinds create an outsized negative impact on cash flow,” they added.
Overall, Morgan Stanley sees value in Zoom but notes the company needs to “get past direct/FX risks now.”
The new price target still indicates over 20% upside potential from current levels.