Why Zoom Stock Is Under Pressure Today

Zoom Video 02.06.21.

Zoom Stock Falls After Q1 2021 Report

Shares of Zoom Video Communications found themselves under pressure after the company released its report for the first fiscal quarter of 2021.

Zoom reported revenue of $956.2 million, which was up 191% year-over-year. The company also reported GAAP earnings of $0.74 per share, while adjusted earnings totaled $1.32 per share.

Zoom’s revenue and earnings easily beat analyst estimates but it looks that the market wanted more, as the stock gained downside momentum and is currently trying to settle below the 50 EMA at $324.85.

In the second quarter, Zoom expects to report revenue of $985 million – $990 million and adjusted earnings of $1.14 – $1.15 per share. Full-year guidance was adjusted to the upside, and the company now expects to report revenue of $3.98 billion – $3.99 billion and adjusted earnings of $4.56 – $4.61 per share.

What’s Next For Zoom Stock?

Zoom managed to beat analyst estimates on both earnings and revenue and provided better guidance for the full year 2021. Typically, this combination is sufficient enough to provide upside momentum to a stock.

However, the situation is more complicated in Zoom’s case as the company is richly valued. Assuming that Zoom will meet its earnings target of $4.56 – $4.61 per share, the stock is trading at about 71 P/E for this fiscal year. Such valuation levels demand strong growth, but it remains to be seen whether Zoom’s growth will continue to impress as the world gets back to normal work.

While some flexibility in the working schedule is projected to stay, it is already clear that the world would not switch to a full “work-from-home” model. The key question for investors right now is whether Zoom has enough room to grow in this environment.

In this light, it’s not surprising to see that the market is a bit nervous despite the strong report. Zoom stock has already lost plenty of ground since October 2020 when it reached a high at $588.84, but the company will likely have to show stronger growth to attract more speculative traders who would be willing to bet on the stock after the major correction.

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