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Zoom Shares Tumble on FTC Settlement, Pfizer Vaccine News

Zoom shares, which have surged five-fold since the start of the year, fell more than 17% in early Monday trading after the online meeting group reached a privacy settlement with the Federal Trade Commission.

Zoom Video Communications  (ZM) - Get Zoom Video Communications, Inc. Class A Report shares extended declines Monday after the Federal Trade Commission said it will require the online meeting group to enhance its security privacy features.

In a settlement the FTC reached with the San Jose-California tech group linked to privacy complaints from users whose information was collected during recorded conferences, the FTC said it will require Zoom to "implement a robust information security program" as well as a "prohibition on privacy and security misrepresentations."

Zoom had told regulators that it offered 'end-to-end, 26 bit encryption" to secure users' communications, "when in fact it provided a lower level of security", the FTC said, giving users a false sense of security.

“During the pandemic, practically everyone—families, schools, social groups, businesses—is using videoconferencing to communicate, making the security of these platforms more critical than ever,” said the FTC's director of consumer protection, Andrew Smith. “Zoom’s security practices didn’t line up with its promises, and this action will help to make sure that Zoom meetings and data about Zoom users are protected.”

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Zoom shares were marked sharply lower in early Monday trading following news of the FTC settlement, extending a decline that was triggered by Pfizer Inc.'s  (PFE) - Get Pfizer Inc. Report update of its coronavirus vaccine trial, which it said had reached a 90% efficacy rate and could be ready for Emergency Use Authorization from the Food & Drug Administration later this year.

Zoom shares traded 13.6% lower on the Nasdaq, compared to a 0.45% gain for the tech-focused benchmark, to change hands at $4131.79 each in early afternoon trading.

The move still leaves Zoom shares some 500% higher than at the start of the year, with gains driven by a surge in the use of its conferencing and meeting tools during both the peak and subsequent waves of the global coronavirus pandemic.

Zoom's revenue for the three months ending in September jumped 355% to $663.5 million, the company said earlier this month, while raising its fiscal 2021 forecast to a range of between $2.37 billion and $2.39 billion.