Zoom Buyer’s Strike Continues Despite Strong Outlook

Zoom Communications Inc. (ZM) traded lower on Wednesday despite beating Q1 2022 estimates and lifting full year guidance. The remote meeting software provider posted a profit of $1.32-per-share, $0.34 better than expectations, while revenue rose an impressive 191.4% year-over-year to $956.24 million, nearly $40 million higher than consensus. The company now expects FY2022 earnings-per-share (EPS) between $4.56 and $4.61 on $3.97 to $3.99 billion in revenue.

2021 Rotation Out of COVID Plays

The apathetic reaction highlights technical and macro headwinds that will be hard to overcome. On the technical side, the stock posted a phenomenal 495% return in 2020, setting off extremely overbought readings that predict a long-term correction. Meanwhile, the introduction of vaccines in the fourth quarter triggered a major rotation out of COVID beneficiaries and into recovery plays. That impulse has continued unabated through the second quarter of 2021.

CEO Kelly Steckelberg outlined the bull case following the release, insisting that Zoom is “evolving into a platform company that will help everything workers do every day”. She also predicts that corporations won’t return to full physical form in coming years, instead choosing “hybrid or flexible work models” that include remote options. U.S. white collar workers are now supporting that thesis, scooping up homes far away from busy city centers.

Wall Street and Technical Outlook

Wall Street consensus is mixed after last year’s outsized gains, yielding an ‘Overweight’ rating based upon 11 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $250 to a Street-high $540 while the stock will open Thursday’s session nearly $80 below the median $400 target. This low placement exposes a major conflict with Main Street investors, who firmly believe that Zoom is over-valued.

Zoom mounted 2019 resistance at 107.34 in February 2020 and took off in an historic uptrend that posted an all-time high at 588.84 in October. The stock has carved four lower lows since that time, relinquishing more than 53% of its value into May’s 8-month low. More importantly, price action broke support at the 200-day moving average in March while five attempts to remount this barrier have failed, indicating the downtrend remains fully intact.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.