The assessment of Zoom video communication is aligned with reality | Panda Anku

The assessment of Zoom video communication is aligned with reality

Zoom video communication (NASDAQ:ZM) The stock price soared into the stratosphere as the pandemic swept the world, but those days are long gone. Now, after correcting about 85% from its post-pandemic peak, the stock has finally fallen back to levels that seem attractive. The Q2 report was a mixed bag of results that included weak guidance, but there’s a takeaway for investors to consider.

Get the full Henry Singleton series in PDF

Get the entire 4 part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email it to your colleagues

Q2 2022 hedge fund letters, conferences and more

How MicroStrategy went from a software company to a bitcoin game

BitcoinMicroStrategy and its CEO, Michael Saylor, have played a significant role in bitcoin headlines since he transformed the company from a software company into a primary bitcoin company. That worked well for a while, but things didn’t go so well in 2022. In fact, MicroStrategy lost $2 billion on its Bitcoin bet. Read more

Zoom Video Communications guidance has been cut to a range below consensus numbers, but the growth is still there and, more importantly, the profitability. How many tech stocks, particularly young, growth-oriented startups like Zoom Video Communications, can claim to be making positive gains at this stage of the game? So while growth slows, the company is maturing and its valuation is much more palatable. Trading at about 22 times earnings, the stock not only compares cheaply to other tech growth stocks, but also to blue-chip tech names like Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) also.

Mixed results weigh on Zoom video communications

Zoom Video Communications reported a mixed quarter, but that’s just based on analyst estimates and year-on-year comparisons. The company reported net sales of $1.1 billion on earnings up 7.8%, missing analyst consensus by 180 basis points but is up 900% over the past 3 years. With that in mind, and as the pandemic has subsided, it’s no wonder growth has slowed. The key point is that this company is still growing and its customer base is maturing. The number of customers contributing more than $100,000 in sales increased 37% year over year, underpinning the company’s growth.

Down on margin and earnings, the news is getting better, although full-year guidance is weak. The company’s GAAP and adjusted operating margins declined year over year, but far less than expected. Adjusted margin of 35.8% brought earnings per share to $1.05 per share, down year-over-year but $0.12 better than expected, but the strength wasn’t enough to support previously released guidance . The company lowered its revenue and earnings ranges for the third and 22nd quarters below consensus numbers, prompting analysts to downgrade the stock and lower their targets even further.

At least 13 of the 30 analysts covering Zoom Video Communication came out with comments following the report, and all of it includes a reduction in the target price. The only downgrade to neutral has put’s consensus number at “Strong Hold,” a rating that has held steady over the past year while the target price has fallen significantly. New targets include a new bottom of $76, which assumes some downside for the market, and the consensus is down more than 50% over the past year, but the common assumption is that this stock is 70% undervalued.

The Technical Outlook: Zoom Video Communications sell-off is overdone

Q2 news and guidance shows ZM shares are moving lower and they could fall even lower, but the risk for this market is on the upside. Not only does the sell-off appear overdone on the weekly charts with the stochastics and MACD deviating from the new lows, but the company’s health is good. Growth is slowing down, but the growth is there and the profitability is there too. The stock could move lower, but a bottom will soon be reached and a trend reversal could begin once the next earnings season begins. Until then, investors should keep an eye on the $80 level as there are signs of support and the potential for a bottom at this level on the daily chart.

zoom video

Article by Thomas Hughes, MarketBeat

Leave a Comment