Zoom Video Communications has been one of the few stand-outs in the current market, with shares doubling and usage surging during the coronavirus pandemic, but now the company’s high profile has raised concerns about user privacy and security.

The teleconferencing company has become a favorite business tool as more employees work remotely, but concerns over privacy could complicate that popularity and expose it to new risks. For example, Zoom was recently sued by one user who claimed it is illegally disclosing personal information, and on Wednesday, Reuters reported that SpaceX had banned its employees from using Zoom due to privacy concerns.

The issue prompted a blog post from Oded Gal, Zoom’s chief product officer, who apologised for “In light of recent interest in our encryption practices, we want to start by apologising for the confusion we have caused by incorrectly suggesting that Zoom meetings were capable of using end-to-end encryption”.

“While we never intended to deceive any of our customers, we recognise that there is a discrepancy between the commonly accepted definition of end-to-end encryption and how we were using it,” the post read.

Shares of Zoom fell 5.8% pre-market April 2, on pace for its fourth straight decline. The company has already slumped about 10% over the prior three trading days, though it’s more than doubled this year, based on Wednesday’s close.

Sen. Richard Blumenthal of Connecticut recently said he was considering legislation to ensure that video conferencing services provide sufficient protection, while New York’s attorney general has reportedly questioned Zoom about user privacy.

“While rising legal costs are inevitable for the budding company, US laws leave room for Zoom to steer around material fines and damage awards,” wrote Matthew Schettenhelm, an analyst with Bloomberg Intelligence. He expects Zoom “can avoid most major penalties in the US”.

Facebook Inc, for example, “seems to have made it through the flurry of recent privacy scrutiny without too much damage to its user growth,” Schettenhelm said.

Analysts remain positive on Zoom, which Morgan Stanley recently said had become “the default definition for videoconferencing”. Earlier on Thursday, Sanford C. Bernstein wrote that it continues to recommend buying the stock as “paid user adoption has surged dramatically, although likely not to the same extent as free usage”.

Bernstein cited a recent survey it had conducted of employed US adults, which showed that “anywhere from 7% to 20% are paying for a Zoom subscription for personal use”, a trend that could add “a few hundred million” to full-year revenue.

Separately, RBC Capital Markets raised its price target to US$125 from US$110 , citing data that show a surge in downloads for Zoom’s app. But analyst Alex Zukin reiterated his sector-perform rating, writing that “valuation is still elevated”.

 - Bloomberg