In the wake of Zoom Video Communications, Inc.'s (NASDAQ:ZM) latest US$1.2b market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Institutions' substantial holdings in Zoom Video Communications implies that they have significant influence over the company's share price
• The top 16 shareholders own 51% of the company
• 19% of Zoom Video Communications is held by insiders

To get a sense of who is truly in control of Zoom Video Communications, Inc. (NASDAQ:ZM), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 56% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And institutional investors saw their holdings value drop by 5.6% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 44% might not go down well especially with this category of shareholders. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. As a result, if the decline continues, institutional investors may be pressured to sell Zoom Video Communications which might hurt individual investors.

Let's delve deeper into each type of owner of Zoom Video Communications, beginning with the chart below.

Check out our latest analysis for Zoom Video Communications

What Does The Institutional Ownership Tell Us About Zoom Video Communications?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Zoom Video Communications already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Zoom Video Communications' earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Zoom Video Communications is not owned by hedge funds. The company's CEO Eric Yuan is the largest shareholder with 9.6% of shares outstanding. For context, the second largest shareholder holds about 6.8% of the shares outstanding, followed by an ownership of 4.3% by the third-largest shareholder.

After doing some more digging, we found that the top 16 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over the company.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Zoom Video Communications

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our most recent data indicates that insiders own a reasonable proportion of Zoom Video Communications, Inc.. It is very interesting to see that insiders have a meaningful US$3.9b stake in this US$20b business. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.

General Public Ownership

With a 25% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Zoom Video Communications. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Zoom Video Communications , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.