Online video meetings platform Zoom Video Communications saw its stock post its biggest one-day slump after the $71 billion software company spooked investment markets with guidance that may suggest its lockdown growth spurt is over.
Zoom reported revenue of $1.02 billion and adjusted earnings of $1.36 per share, beating analyst estimates on both measures. But while second-quarter results were strong, the company’s steer for the third quarter sent shockwaves among growth investors, and the stock spinning more than 16% lower to close overnight at $289.50.
At their height ion October 2020, Zoom stock had traded at $599.
GROWTH OVER OR TAKING A BREAK?
For Q3, Zoom anticipates generating revenue of between $1.015 billion and $1.02 billion, roughly in line with the Street’s $1.01 billion revenue estimate. The company is calling for adjusted EPS in the $1.07 to $1.08 range, lower than the consensus estimate of $1.09 a share.
‘We believe the next two or three quarters could present challenges as a new usage steady state is established,’ said analysts at Oppenheimer. ‘We expect the shares to come under pressure in the near-term as shareholders realign their expectations,’ the analyst said in a note to clients.
The main question for investors seems to be whether Zoom can continue to expand as Microsoft goes after its business with its Teams application.
PLENTY OF LONG-RUN FANS
Management’s acknowledgment of increased churn and slowing growth among customers with fewer than 10 employees was an area of concern for Needham analyst Ryan Koontz, which he expects ‘could persist for multiple quarters, overshadowing progress in enterprise.’
But not everyone is being put off by growth worries. According to reports, Cathie Wood’s Ark Invest rushed to buy shares in Zoom as the stock collapsed, the investment firm popular with US growth investors 194,080 shares estimated to be worth about $56.2 million. Analysts also remain firmly supportive. Based on Refinitiv data, 15 out of the 28 analysts that cover the stock have buy ratings on the stock. Only one has a sell rating on the shares.
