Zoom Video Communications Lags the Rebound in Tech Stocks

Zoom Video Communications (ZM) has failed to join the rebound in technology stocks since the mid-June low in the Nasdaq 100.  The stock has retreated even as most tech stocks have rebounded since June.  Analysts predict the video-conferencing company, which went public in 2019, will report its smallest ever increase in quarterly revenue later today.

Revenue and sales soared for Zoom Video Communications during the pandemic as individuals and businesses flocked to video conferences.  Many customers stuck with Zoom’s free service after the pandemic, although businesses have other options, such as Microsoft’s (MSFT) Teams.  Investors remain wary about Zoom Video Communication’s second-quarter earnings that are scheduled to be released later today. 

While Zoom Video Communications remains a profitable company, expectations for its sales growth may still be too high.  In a research note, Morgan Stanley said, “even if the company guided to more profitability in a more macro constrained environment, a more conservative top-line outlook could cause the stock to trade off in the near term.”

Since the company went public in 2019, Zoom Video Communications has beaten revenue and profit estimates every single quarter.  However, its share price has fallen after six out of the last seven quarterly reports as investors look to see how the company will fare in a slower growth, post-pandemic environment.  Zoom’s share price has missed the big rally in technology stocks since mid-June, falling -6.2%, while the Nasdaq 100 Stock Index ($IUXX) (QQQ)  has surged 19%.

Now that the hyper-growth days from the pandemic are over, Zoom is focusing on gaining market share among business clients.   The consensus is for Zoom Video Communications to report a +9% increase in sales in Q2, down from 12% in Q1.  For this year and the next two, analysts estimate 11% to 13% growth, well below the 300% plus annual surge the company posted during the pandemic's peak. Analysts are split on the stock, with 14 recommending investors buy and 15 recommending hold.  Citigroup last week became the only firm to rate the stock a sell.   

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