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Zoom stock out of focus despite upbeat profit

 

Tuesday, August 23, 2022

The news shaping the markets today

Russia is looking to launch fresh attacks on Ukraine’s government and civilian infrastructure. The news sent WTI crude oil prices higher this morning.


Japan’s services PMI fell to 49.2 in August, from 50.3 in the previous month, Despite the country’s services activity signalling the first contraction since March, the JPY/USD forex pair remained elevated.


Australia’s manufacturing PMI declined to 54.5 in August, from 55.7 a month ago, falling to the weakest level in a year. However, the country’s manufacturing sector remained in the expansion zone, which sent the AUD/USD pair higher in forex trading this morning.


South Korea’s Composite Consumer Sentiment increased by 2.6 points from the prior month to a reading of 88.8 in August, which supported the KRW/USD forex pair.


Argentina posted a trade deficit of $437 million in July, following a year-ago surplus of $1,536 million. This being the largest gap since August 2018 sent the ARS/USD pair lower in forex trading this morning.

 

What’s happening: Shares of Zoom Video Communications tumbled in after-hours trading on Monday, despite the company reporting better-than-expected earnings for its July quarter.

What happened: Although Zoom’s revenues grew 8% year-on-year, the figure was significantly lower than the growth recording in the year-ago quarter.

Investors were also concerned about the San Jose, California-based company lowering its outlook for fiscal 2023.

How were the results: The videoconferencing software company reported growth in revenues but a double-digit decline in earnings for its fiscal second quarter.

  • Revenues grew 8% to $1.09 billion, slowing from the 54% growth recorded in the year-ago period. The figure fell short of the consensus estimate of $1.12 billion.
  • Adjusted earnings contracted by 23% year-over-year to $1.05 per share, but still came in above market expectations of 94 cents per share.

Why it matters: Zoom came into focus with the outbreak of covid-19 in early 2020 and recorded triple-digit growth in revenues during the peak of the pandemic, with people being forced to work and learn from home.

With the easing of restrictions, the company has been witnessing a decline in the demand for its video conferencing platform, with rivals like Microsoft, Google and Cisco posing tough competition.

Zoom increased its expenses to attract more high paying customers, which took its operating expenses up 51% to $704 million in the quarter. The company ended the quarter with 204,100 Enterprise customers, representing an 18% year-over-year surge. Zoom also said that 3,116 of its customers represented more than $100,000 in revenues on a trailing 12-month basis, up 37% year-over-year.

“In Q2, we delivered our fifth straight quarter with revenue of over one billion dollars,” CFO Kelly Steckelberg said during the earnings call. Steckelberg added, however, that the strengthening of the US dollar had impacted its business.

Management guided to revenues between $1.095 billion and $1.1 billion for the third quarter, lower than the consensus estimate of $1.15 billion. For the full fiscal year, Zoom reduced its revenue projection to $4.385-$4.395 billion, from its prior forecast of $4.53-$4.55 billion. The range was below market expectations of $4.54 billion. Non-GAAP earnings are now seen at $3.66-$3.69 per share, versus its earlier forecast of $3.70-$3.77 per share.

How shares responded: Zoom’s shares fell 8.3% to $89.35 in after-hours trading on Monday, following the release of quarterly results. The stock also declined 2.1% during the regular trading session amid an overall downturn on Wall Street.

What to watch: Investors will keep an eye on the easing of pandemic restrictions and moves made by the company’s rivals, including Microsoft Teams, Google Meet and Cisco WebEx.

The markets today

European stocks in focus today ahead of a basket of economic reports

Context: European markets settled lower on Monday amid rising concerns of more aggressive interest rate hikes by the US Federal Reserve and the European Central Bank.

Details: Traders shorted equities on Monday amid hawkish comments from ECB officials. Bundesbank President Joachim Nagel said the ECB must continue to increase rates even as recession concerns mount in Germany.

The ECB will be releasing minutes from its policy meeting held on Thursday last week. Markets also await a speech by Fed Chairman Jerome Powell at the Jackson Hole symposium this week.

Rising concerns over energy shortages in Europe also impacted overall market sentiment on Monday.

Asia-Pacific stocks closed mostly lower on Monday, with Chinese equities rising after the People’s Bank of China lowered its benchmark lending rates in its efforts to revive the country’s economy.

The pan-European Stoxx 600 fell 0.96% to close at 433.17 on Monday, with auto stocks leading the decline. Almost all the major sectors closed the session on a lower note.

London’s FTSE 100 declined by 0.22% to close at 7,533.79, while the DAX 40 and CAC 40 dipped 2.32% and 1.80%, respectively.

What to watch: Traders await the release of economic data on manufacturing PMI, services PMI and consumer confidence from the Eurozone today. The S&P Global Eurozone manufacturing PMI, which fell to 49.8 in July, is expected to decline further to 48.6 in August. Services PMI is projected to decline to 50.8, from 51.2 in July. Analysts expect consumer confidence in the Eurozone to fall to -28.6 in August, from -27 in the prior month.

Other Markets: US indices closed lower on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.91%, 2.14% and 2.66%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 137.11 and 137.23 Positive
USD/CAD – 1.3030 and 1.3036 Positive
Silver – 18.842 and 18.888 Positive
WTI Crude Oil – 90.79 and 91.15 Positive
Dow Jones – 33019.63 and 33107.46 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9944, 0.01%) Dow ($33,134, 0.24%) Brent ($97.25, 0.8%)
GBP/USD (1.1770, 0.02%) S&P500 ($4,150, 0.22%) WTI ($91.12, 0.8%)
USD/JPY (137.31, -0.15%) Nasdaq ($12,944, 0.27%) Gold ($1,751, 0.2%)

What else to watch today

South Africa’s leading business cycle indicator, unemployment rate and number of unemployed persons, Turkey’s consumer confidence indicator, France’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Bank of Indonesia’s interest rate decision, UK’s manufacturing PMI, services PMI, composite PMI and CBI industrial trends orders, US Redbook index, manufacturing PMI, services PMI, composite PMI, new home sales, Richmond Fed composite manufacturing index, Richmond Fed services index, new home sales and API crude oil stocks, Brazil’s federal tax revenue, as well as Argentina’s economic activity estimator.


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