Zoom slides 14% as slowing sales-growth forecasts make investors question the stock's 200% post-COVID rally

• Zoom Video sank as much as 14% on Tuesday after the company's quarterly report revealed an expected slowdown in sales growth into 2021.
• The company's third-quarter revenue and earnings beat estimates, and guidance for the current quarter and full fiscal year landed above expectations.
• Yet the high end of Zoom's fourth-quarter sales forecast implies growth of 330% from the same period last year. That's less than the year-over-year growth seen in the second and third quarters.
• Analysts have debated whether Zoom's 200% rally from the market's March lows is sustainable as COVID-19 vaccines near distribution and revenue growth slightly weakens.
• Watch Zoom trade live here.

Zoom Video tumbled as much as 14% on Tuesday after its third-quarter report hinted its incredible revenue growth will weaken through the end of the year.

The videoconferencing-software company reported revenue and profits that landed above expectations on Monday afternoon. Guidance for the current quarter topped the average analyst forecast, as did full-year expectations.

Yet Zoom's projections show a slight slowdown in revenue growth into 2021. The company expects revenue to land as high as $811 million in the fourth quarter, easily surpassing the average estimate of $719 million. The high end of Zoom's revenue guidance implies growth of roughly 330% from the year-ago period. While still extraordinary, the rate is slightly slower than that seen over the second and third quarters.

Here are the key numbers:

Revenue: $777.2 million, versus the $693.4 million estimate

Adjusted earnings per share: 99 cents, versus the 75 cents estimate

4Q revenue: $806 million to $811 million, versus the $719 million estimate

2020 revenue: $2.58 billion, versus the $2.40 billion estimate

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The stock's decline highlights its fragility after surging through the pandemic. Zoom is among the stay-at-home stocks that gained the most as companies shifted employees to remote working. The company's shares gained roughly 200% from the market's March 23 low.

With strong momentum lifting shares through November, Zoom had a high bar to clear with its quarterly report. Though rising COVID-19 cases in the US lifted outlooks for the firm, shares have seen pressure from positive vaccine progress. Public health officials have indicated widespread vaccine distribution will be achieved in 2021, leading some analysts to question whether Zoom's high valuation is sustainable.

Read more: HSBC says buy these 31 global stocks that are exposed to the pandemic's biggest disruptions to tech and set to become growth engines of the future

Investors likely balked at falling margins as well. Zoom reported an adjusted gross margin of about 68% in the prior quarter, down from 72% in the second quarter. The company attributed the higher costs to free users and public cloud services. The company expects similar margins through the current quarter before they improve.

Zoom closed at $478.36 per share on Monday, up 616% year-to-date. The company has 23 "buy" ratings, 27 "hold" ratings, and four "sell" ratings from analysts.

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