Why Zoom Stock Is Down By 16% Today

Zoom Stock Dives As Q3 Guidance Disappoints

Shares of Zoom found themselves under strong pressure after the company released its second-quarter report.

Zoom reported revenue of $1.02 billion and adjusted earnings of $1.36 per share, beating analyst estimates on both earnings and revenue. While second-quarter results were strong, the company’s guidance was disappointing.

In the third quarter, Zoom expects to report revenue of $1.015 billion – $1.02 billion and adjusted earnings of $1.07 – $1.08 per share.

Zoom explained that it faced headwinds as workers got back to their offices while students moved back to schools. The company also noted that demand from small customers declined, while demand from large firms remained strong.

What’s Next For Zoom Stock?

The company’s third-quarter guidance implies no growth, which is not good for richly-valued stocks like Zoom. Currently, analysts expect that Zoom will report earnings of $4.67 per share in the current year and $4.76 per share in the next year, so the stock is trading at more than 60 forward P/E even after today’s drop.

Such valuation implies fast growth but Zoom is facing headwinds. The company stated that the return to work was its main near-term problem, but the market will also take a look at the possibility of increasing competition from products like Microsoft Teams.

It remains to be seen whether the significant pullback will attract speculative traders as slowing growth is traditionally considered to be a dangerous catalyst for richly-valued stocks like Zoom.

Zoom’s growth story is now under question, and there is potential for additional multiple compression, which will inevitably put pressure on the company’s shares as earnings estimates should not increase in the upcoming weeks.

At the same time, it should be noted that one quarter without growth is not the end of the world for Zoom, and the company may move back to the growth trajectory in 2022.

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