Zoom Video dials strong results; shares spike

Today’s headlines

What’s happening: Shares of Zoom Video Communications gained in extended trading on Monday, after the company released results for its second quarter.

What happened: The videoconferencing software company reported better-than-expected results, topping earnings expectations for the 17th straight quarter.

Zoom also issued its forecast ahead of market expectations, sending the company’s shares higher in after-hours trading.

How were the results: The San Jose, California-based company reported single-digit growth in sales for the fiscal second quarter, which came in higher than market estimates.

• Revenues grew by 3.6% year-over-year to $1.14 billion, which topped the consensus estimates of $1.11 billion.
• Adjusted earnings came in at $1.34 per share, beating the Wall Street expectations of $1.03 per share.

Why it matters: Markets had been concerned about a slowdown in Zoom’s sales growth with its videoconferencing platform facing tough competition from Microsoft’s Teams.

Zoom continued to invest in artificial intelligence to accelerate its overall growth, which included an AI startup, Anthropic, and the acquisition of Workvivo, a six-year-old Irish company.

“Our mission of delivering limitless human connection remains core as we continue to innovate and expand our platform to help bring value and enhanced productivity to our customers with new AI features like Zoom IQ Meeting Summary and Team Chat Compose, as well as Intelligent Director,” CEO Eric Yuan said during the earnings call.

Zoom closed the recent quarter with around 218,200 enterprise customers, representing 6.9% year-over-year growth. Its operating cash flows increased 30.6% year-over-year to $336 million.

The company’s enterprise revenues rose 10% to $659.5 million, surpassing market estimates, while online sales to consumers and small business fell 4.3% to $479.2 million.

Management guided to revenues of $1.115-$1.12 billion for the third quarter, slightly lower than market expectations of $1.13 billion. The company projected third-quarter earnings of $1.07-$1.09 per share, higher than market views of $1.03 per share.

For the full year, the company sees revenues of $4.485-$4.495 billion and earnings of $4.63-$4.67 per share, higher than the consensus estimates of $4.48 billion and $4.30 per share.

How shares responded: Zoom’s shares gained 3.8% to $69.82 in the extended trading session, following the release of quarterly results. The stock has lost around 8% over the past six months.

What to watch: Traders will watch rising competition in the videoconferencing space as well as the company’s adoption of AI technology.

The markets today

The US dollar will be in focus today ahead of a basket of major economic reports

Context: The US dollar edged lower on Monday, ending a five-week winning streak.

Details: The US dollar has been on an uptrend over the past few weeks amid a surge in Treasury yields. Benchmark 10-year yields climbed to a 15-year high on Monday.

Last week, minutes from the Federal Reserve’s meeting suggested upside risks to inflation, leaving the door open for further rate hikes. On the other hand, China’s central bank cut its one-year loan prime rate by 10 basis points to 3.45% but held the five-year loan prime rate at 4.2%.

Investors are awaiting a speech from Fed Chairman Jerome Powell at the central bank’s summer symposium in Jackson Hole, Wyoming on Friday, which is expected to provide some direction to US Treasury yields and the greenback.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell less than 0.1% to 103.30 on Monday, after reaching a two-month high of 103.68 on Friday.

The EUR/USD forex pair gained around 0.2% to 1.0896, while the GBP/USD added around 0.2% to reach 1.2756 on Monday.

What to watch: Traders await the release of economic reports on existing home sales, Richmond Fed services index and Richmond Fed manufacturing index from the US today. Existing home sales in the US, which declined by 3.3% to an annualised rate of 4.16 million units in June, are likely to fall 0.5% in July.

The Fifth District Service Sector Activity Revenues index, which rose to -2 in July, is projected to increase to -1 in August. Analysts expect the Richmond Fed manufacturing index to improve to a reading of -3 in August, from -6 points in July.

Other Markets: European indices closed mostly higher on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.19%, 0.47% and 0.05%, respectively, and the FTSE 100 index down by 0.06%.

The news shaping the markets

In a speech outside the Danish parliament, Ukraine President Volodymyr Zelenskyy said that he was “confident” that Russia would lose the ongoing war. The news sent the safe-haven US dollar index slightly lower this morning.

South Korea’s Composite Consumer Sentiment Index fell to 103.1 points in July, from 103.2 in the prior month, exerting pressure on the KRW/USD forex pair.

Canada’s new home prices fell by 0.1% in July, missing market expectations of 0.1% growth, which sent the CAD/USD pair lower in forex trading this morning.

Hong Kong’s annual inflation rate eased to 1.8% in July, from 1.9% a month ago, lending support to the HKD/USD forex pair.

Greece’s current account deficit shrank to €0.64 billion in June, from €0.84 billion in the year-ago month, which sent the EUR/USD pair higher in forex trading this morning.

What else to watch today

UK’s public sector net borrowing and CBI industrial trends orders, South Africa’s leading business cycle indicator, Eurozone’s current account, Italy’s current account, US Redbook index, as well as Brazil’s Federal tax revenues.