Zoom Video Communications Earnings: ZM stock drops nearly 10% on clipped Q3 outlook

UPDATE: Zoom Video Communications offered up a mixed bag for its Q2 earnings release late Monday, but the market chose to focus instead on weaker guidance for the third quarter. ZM shares have dropped as much as 9.8% to $87.88 in Tuesday's premarket. Adjusted EPS of $1.05 was well ahead of the $0.93 called for by analysts, but revenue for the quarter was $17.6 million short of the $1.12 billion consensus figure. To top it off, management guided Q3 results to $0.82 or $0.83 on sales of $1.095 billion to $1.10 billion. In other words, executives see earnings falling 20% QoQ and revenue remaining flat.

Zoom Video Communications (ZM) stock is off 2% at $97.55 ahead of fiscal second quarter 2023 earnings expected after the close on Monday. The sell-off seems less attributable to earnings expectations than pessimism about the overall market. Nasdaq futures are down 1.5% at the time of writing.

Also read: Meta Platforms (META) Stock Deep Dive: Facebook parent price target at $200 despite macro headwinds

Zoom earnings news

There is not much reason to be pessimistic this quarter. Zoom offered up a decent beat last time around, and most analysts have upgraded their earnings per share (EPS) estimates for the quarter ending in July. In fact, EPS revisions for the second quarter have mostly been upward.

Wall Street consensus calls for adjusted EPS of $0.93 on revenue of $1.12 billion. That revenue figure would signify a growth rate of just 10% YoY, but the severe deceleration in growth has already been factored into the share price, which is down 70% over the past year.

Zoom is pretty much the post child for the pandemic-induced "pulling revenue forward" situation. With large percentages of office employees working from home during the height of Covid-19, Zoom's video application helped revenue rise 350% or more YoY for three consecutive quarters. Post-pandemic, revenue has continued to grow but at a much-reduced rate.

Competition from Microsoft's Teams product will also be a point of focus for earnings call questions.

Citi analyst Tyler Radke downgraded ZM stock to "sell" on August 16, partly due to competition from the world's biggest software company. "Although new SKUs such as Phone are promising, we believe increasing churn [...] and rising competition in enterprise will more than offset new product strength and drive estimates below consensus," Radke wrote of his decision. The analyst reduced his fiscal 2024 (year ending January 2024) revenue estimate to 17% below the current Wall Street consensus of $5.11 billion.

MKM Partners' Catharine Trebnick recently went pretty far against the grain by granting Zoom with a "buy" rating and a $135 price target. She expects management's 11% fiscal 2023 guidance to be easily beaten, estimating that full-year revenue growth will end up at 20%.

Zoom stock forecast

Though Zoom should cruise to an easy beat just like it did in the first quarter when shares spiked 17% after results, the daily chart is not looking too good. Of course, a major beat could disrupt the pessimistic visions of analysts and once again send shares soaring. ZM stock's close on Friday is about 10% above where it was heading into Q1 results.

Both the Moving Average Covergence Divergence (MACD) indicator and the 9-day and 21-day moving averages are showing a bearish crossover at the moment. Sitting just above the $97 support level reached in mid-July, an earnings miss could send Zoom stock down sharply since there is little support until the $79 price level that ZM tested on May 12.

Zoom's recent swing high on August 8 did not reach $120, which was below the late June/early July range high at $124, which was itself lower than the $126.50 range high from late March/early April. It seems traders are losing faith with each subsequent rally this year. A break above $120 is required to alter perceptions.

Zoom daily chart