Here’s Why Zoom’s Stock Crashed Today

Why did Zoom’s stock crash today?

Here’s what you need to know?

Stock Market

The Dow Jones is up more than 5% today on two positive catalysts:

  • The election of Joe Biden as the 46th president of the United States; and
  • Pfizer
    reporting positive results from a potential Covid-19 vaccine.

Pfizer, the pharmaceutical giant, said its clinical trial for a potential Coronavirus vaccine shows more than 90% efficacy in patients who receive a second dose after seven days.

“I think we can see light at the end of the tunnel,” Pfizer Chairman and CEO Dr. Albert Bourla said on CNBC today. “I believe this is likely the most significant medical advance in the last 100 years, if you count the impact this will have in public health, global economy.”

Pfizer’s stock soared 15% on the positive results. While there is no guarantee that Pfizer’s potential vaccine will receive final approval, former FDA commissioner Dr. Scott Gottlieb told CNBC the potential vaccine could be available widely by the third quarter of 2021, which implies next summer or early fall.

So, what does a vaccine have to do with Zoom?

Zoom stock crashes

Zoom, the video-conferencing software company, dropped nearly 16% today in early trading. Why? Zoom has been the go-to platform globally for the remote workforce. Think of it this way: Zoom is the poster child of the work from home movement. In April 2019, Zoom announced its IPO priced at $36 per share, which implied a market capitalization of approximately $9.2 billion. This year, Zoom’s stock has risen by 600%.

Zoom stock falls: the drivers

Why has Zoom experienced explosive growth? The Covid-19 pandemic has fueled Zoom’s growth as more companies use Zoom’s platform for meetings and collaboration, while individuals use Zoom to stay in touch with friends and family. Social distancing rules and closed offices has led to a substantial increase in Zoom’s user base, financial performance and stock price.

What a Covid-19 vaccine means for Zoom

A potential vaccine, if effective and if widely distributed, implies that Zoom’s growth and user base could slow. If more people return to in-person work or if social distancing rules are eased, or both, fewer people could use Zoom. While a 16% stock price drop is relatively small against the backdrop of year-to-date performance, it could be a sign of further downward pressure on Zoom’s share price if the vaccine receives regulatory and marketing approval.

Other stocks could benefit

Other stocks outside the healthcare sector could benefit with the approval of a potential vaccine. Here are some other sectors to watch for:

  1. Airlines
  2. Cruises
  3. Restaurants

Essentially, any business that could thrive when in-person activity increases is a potential winner in this scenario. Conversely, work-from-home stocks like Peloton could suffer as more people may opt to exercise in a gym, rather than inside their home. That said, even with positive results in a relatively small sample size, there is no guarantee that Pfizer’s vaccine will be approved or will work on a wide-scale. This reality also could impact stock performance.

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