02 June 2020

Zoom Shares Spike Ahead of Q1 Earnings

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News shaping
the markets today

     

What’s happening: Zoom Video Communications is scheduled to report its first-quarter results after the closing bell on Tuesday, June 2.

What happened: Coronavirus-induced lockdowns have led to the emergence of new trends, the most prominent of which is working and learning from home. Zoom rose to the occasion to become one of the main beneficiaries of the global shift towards people working from home and schools conducting their classes online.

The communications technology company remained in the spotlight since the beginning of the pandemic and its estimates have been revised higher over the past three months. Investor optimism ahead of the quarterly earnings call, drove Zoom’s stock to a record high yesterday. Some may consider see this an attractive profit taking opportunity, as certain glitches may have hurt the company’s latest quarter results.

Expectations for the quarter: The remote conferencing company is expected to report strong revenue growth and triple-digit earnings growth for the recent quarter.

  • Revenues are expected to have grown 66.8% to $203.53 million in the first quarter.
  • The earnings estimate stands at 10 cents per share, which is a whopping 233% higher than the same quarter last year
  • Zoom’s free cash flows are expected to have risen to $44.5 million, from $15.3 million in the year-ago quarter period. The consensus estimate also calls for 200% growth in operating cash to $67 million.

Why it matters: Zoom has enjoyed a strong rally this year on expectations that the pandemic will result in a spike in the paid subscribers for its video conferencing service. Optimism has been high, especially after the company’s user base reached 300 million in April.

On the other hand, the San Jose, California-based company recently faced major downswings due to disclosures around certain security flaws in its video conferencing service, exposing millions of subscribers to privacy risks. With Zoom announcing various initiatives to address the security gaps, the stock rebounded. There is some concern, however, regarding commercial customers moving to other video services, like Microsoft’s Teams and Cisco’s WebEx. This is the customer category that converts to paid subscribers.

How the shares have performed so far: Zoom’s shares jumped 13.75% to hit an all-time high of $204.15 during the regular trading session on Tuesday. The stock extended its rally in after-hours trading, surging an additional 2.4% to another record high of $209.02. Zoom shares have gained 200% year to date. Investors may take profit if the company misses estimates for the quarter.

What to watch: With the easing of lockdown restrictions and people getting back to their physical workplaces, demand for video conferencing services may decline. Investors will also closely monitor how Zoom addresses its security issues and the initiatives it takes to win back commercial customers to increase its base of paid subscribers. Markets will look forward to management’s outlook for the year.

The Markets Today

     

UK stocks will be in focus today, ahead of various economic reports scheduled for release during the day.

Context: UK stocks closed higher on Monday, with various retailers planning to reopen their stores after months of coronavirus-related lockdowns.

Details: The FTSE 100 has so far recovered around 26% of its losses, after tumbling to an eight-year low in March.

The blue-chip FTSE 100 gained 1.5% on Monday, after closing the last trading day of the month on a lower note due to the US-China tensions. The index was boosted an 8% rise in shares of Associated British Foods, after the owner of fashion retailer Primark announced plans to restart most of its clothing stores this month.

AstraZeneca’s stock also gained around 1.5% on Monday, following news that the company’s drug received a positive recommendation from the EMA (European Medicines Agency) for the treatment of pancreatic cancer. Meanwhile, shares of Ted Baker plunged over 10% as the fashion brand announced plans to raise £95 million from investors through a stock issue, after posting a massive loss of £79.9 million for the year.

The country’s mid-cap index also climbed 1.5% on Monday.

What to watch: Investors await a basket of economic reports from the UK, including house price index, mortgage borrowing, mortgage approvals, and consumer credit. The Nationwide House Price Index, which rose 3.7% in April, is expected to increase another 2.8% in May. Consumer credit in the UK is likely to decline by £4.5 billion in April.

Investors continue to monitor the coronavirus numbers, with the total cases exceeding 6,266,190 globally. The UK has so far confirmed over 277,730 cases with around 39,120 deaths.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 up by 0.36%, 0.38% and 0.66%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s government budget value, Spain’s unemployment change, Russia’s business confidence as well as the US Redbook index, ISM New York current business conditions index and API crude oil stock change.

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