Why Zoom Video Communications Inc. (NASDAQ: ZM) stock traded lower lately?

Updates as of 6th of January 2020

At press time (January 6th, 2020) Zoom is still losing at the pre-market price. The video streaming giant is now trading at the price of $347.88, a 3.59% loss compared to its previous price of $360.83 at closure time on January 5th. 

The trend appears to be obvious: there is a direct and inverted relation with the Covid-19 pandemic. The scariest the news regarding the pandemic, the more the Zoom price – together with other stay-at-home stocks – raises. Optimistic news regarding the Covid-19 vaccine tends to make the stock lower in price.

Besides this speculative trend, there is a key fact to be taken into account: Zoom has become the company leader in video streaming. With revenues of over $622.7 million in 2020 and over 300 million daily meetings, compared to just 10 million in December 2019. If Zoom can maintain its competitive advantage is likely to be maintaining its momentum regardless of the short-term speculations related to the Covid-19 happenings.

The main competitors of Zoom are Cisco, Skype, Facebook Messanger, and Google Meet. This, together with emerging platforms that might pose Zoom’s leadership in the video streaming industry under discussion in the long term such as RingCentral, Cisco, and Twillo. According to Yahoo Finance, ZM’s innovation outlook is trending up based on a current score of 48 out of 99, outperforming the sector average. However, insider sentiment is negative. It is most exposed to Oracle Corporation Japan as its supplier. Over the past 4 quarters, ZM beat earnings estimates 4 times.

Why Zoom traded lower lately?

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Zoom Video Communications Inc. (NASDAQ: ZM) enjoyed tremendous growth in 2020 as the Covid-19 pandemic forced people to work from home that increased the demand for online video communication service providers like Zoom.

Millions of people got stuck at home as governments around the world imposed lockdowns to contain the spread of the virus. Employers and their staff were left with no choice but to interact with each other through user-friendly online software. Educational institutions also started using Zoom for arranging online classes. The easy-to-use interface was the main reason why so many people preferred Zoom over rivals’ services such as Cisco’s WebEx.

ZM stock value climbed nearly 400 percent in 2020. However, its share price has been on a downward trajectory over the past few weeks, as multiple Covid-19 vaccines get closer to regulatory approval, besides a few being already approved. Some analysts believe that the demand for Zoom calls will go down once life gets back to normal.

JPMorgan stated in a note last month that mass vaccinations for the coronavirus could affect the company’s business in the coming months. The research firm decreased its ratings for Zoom from “Buy” to “Neutral,” while surprisingly raising the price target for the stock from $425 per share to $450 per share. JPMorgan added that major businesses may keep using Zoom even after the pandemic, but small entities that have less than 10 employees may no longer use the service, as vaccinations will enable face to face interaction while moving forward.

On the other hand, Zoom CFO Kelly Steckelberg said in a statement late last year, “While we all hope for a vaccine as soon as possible, I think that remote work trends are here to stay.”

Zoom is also making investments to sustain its growth pace. For instance, it is building local offices in different countries around the world to expand its overseas sales growth. It is also pouring a lot of money into research and development activities to explore new services and enhance existing features on the platform.

Financial Performance

Zoom last announced its quarterly financial results on November 30. It reported earnings of $198.4 million, or 66 cents per share for the three-month period ended October 31, well above 1 cent per share in the comparable period of 2019. On an adjusted basis, it reported a profit of 99 cents per share, easily beating the consensus forecast of 76 cents per share.

Revenue for the quarter came in at $777.2 million, representing a surge of 367 percent on a year-over-year basis. Analysts on average were looking for revenue of $694 million.

Speaking on the results, CEO Eric Yuan said in a statement, “We aspire to provide the most innovative, secure, reliable, and high-quality communications platform to help people connect, collaborate, build and learn on Zoom.”

The company also issued guidance for the current quarter. It expects to report an adjusted profit in the range of 77 cents per share to 79 cents per share for the fourth quarter, and revenue between $806 million and $811 million. Analysts on average are expecting Zoom to report adjusted earnings of 66 cents per share on $730.1 million in revenue.

Stock Performance

Zoom stock started in 2020 at around $68 per share. Its share price gradually started rising after the Covid-19 outbreak. Its share price climbed sharply at the end of August after reporting strong financial results for the second quarter. ZM share price touched a high price of nearly $570 in October. However, the stock has been trading flat since November after successful efficacy data from late-stage trials of two Covid-19 vaccines, which received approval from the FDA last month. Overall, Zoom stock soared approx. 400 percent in 2020.

Analysts are also bullish on Zoom . The consensus price target for the stock is $467 per share, significantly higher than the stock’s previous closing price of $337.32. Most analysts have been recommending investors to “Hold” the stock.