Could Zoom be the next big short?

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed or registered financial expert. Please see a financial advisor before making investment decisions.

Photo by Allie Smith on Unsplash

Zoom Video Communications Inc. (NASDAQ: ZM) has been gaining momentum as the coronavirus pandemic forced schools to switch from hosting classes in classrooms to hosting them online. With investors anticipating that Zoom will receive record revenue growth, Zoom shares have skyrocketed. 

While this optimism is justifiable, there are some things investors need to realize. First, many of those new users are most likely going to be the free users, who could also be called "the freeloaders." With many freeloaders using the system, Zoom will need to spend a lot on increasing capacity for its expanded user base. That makes the increase in usage a win for the users but a loss for the company. As more and more people use Zoom frequently, the company will continue burning more cash and the business model becomes unsustainable. 

Furthermore, with many organizations and people trusting Zoom for providing a satisfying experience, "zoom-bombing" has become common. Scrolling through twitter, tik tok, and other social media platform, I see many videos of zoom-bombings in action. While those incidents can be seen as humorous, it does show that Zoom has a big problem with security. In a recent report, Zoom hasn't provided "end-to-end" encryption for its users, allowing Zoom bombers to disrupt classrooms, business meetings, etc. Because of that, many companies, organizations, and governments have placed bans on the use of Zoom. 

Moreover, many Zoom users are at risk of having their data sold on the dark web and hacker forums. With access to the account info of many Zoom accounts, malicious criminals have sold the account infos to others for pennies with some accounts being given for free. The sale of Zoom accounts has contributed to the increase in zoom bombings.

The privacy situation in Zoom gets worse as a new report found that Zoom also makes money selling data to Facebook. With that, Facebook buys the data from Zoom even if the user doesn't have a facebook account. 

All of this makes Zoom privacy situation a lot worse and many people are now starting to learn about it. With the privacy issues and a business model that doesn't benefit much from the rapid growth of users and usage, the momentum for Zoom's stock might be short lived. 

Photo by Gabriel Benois on Unsplash

With Zoom's PR night storm, its competitors are starting to look more attractive

Here's a list of a couple of Zoom's biggest competitors:

• WebEx by Cisco (NASDAQ: CSCO)
• Hangouts by Google (NASDAQ: GOOGL) (NASDAQ: GOOG)
• GoToMeeting by LogMeIN (NASDAQ: LOGM)
• Skype and Teams by Microsoft (NASDAQ: MSFT)
• GoToMeeting
• BlueJeans
• join.me

And the list goes on and on. 

Overall

Zoom's privacy issues and the flaws in its business plan make this momentum stock a riskier stock to invest in. While the momentum is fueled by an expected bump in user growth, having most of the user growth going to the free plan and receiving public outrage from its privacy issues adds additional risk to Zoom's potential in capitalizing on the new paradigm shift to online learning. 

Invest wisely.