Zoom Video (NASDAQ:ZM) has gone from an obscure yet easy-to-use video communication platform to becoming synonymous with video conferencing and remote engagement driven by the COVID-19 pandemic. Zoom Video has been a major benefactor of the pandemic helping to usher in the “new normal” of hybrid work in a post-pandemic world. While other video calling tools were available, Zoom’s incredibly simple interface brought video conferencing to the mainstream masses. The company’s growth has since peaked as normalization continues to take hold. The question is where the baseline is for Zoom and what catalysts can help it accelerate growth. The company competes with many teleconferencing and business collaboration software companies such as Adobe (NASDAQ:ADBE), Microsoft Teams (NASDAQ: MSFT), Salesforce (NASDAQ: CRM), Google Workspace (NASDAQ:GOOG), Cisco Webex Meetings (NASDAQ: CSCO) and even Verizon (New York Stock Exchange: VZ) with its BlueJeans Meetings app. The company wants to become a unified communications platform by adding email and calendar functions. It has also partnered with AMC Entertainment (NYSE:AMC) to turn select venues into Zoom meeting rooms
Growth continues to slow
On November 21, 2022, Zoom Video released its fiscal 2023 third quarter results for the quarter ended October 2022. The company reported earnings per share (EPS) of $1.07, topping analyst consensus estimates by a profit of $0.84 of $0.23. Revenue increased 4.9% year over year (YoY) to $1.1 billion, in line with analyst consensus estimates of $1.1 billion. Clients with an annual run rate (ARR) of $100,000 increased 31% to 3,286. Corporate customers increased 14% year over year to 209,300. Company revenues increased 20% year over year to $614 million. The average online monthly churn rate was 3.1%, down 60 basis points from the same period last year. Zoom Video ended the quarter with $5.2 billion in cash and cash equivalents and marketable securities. Zoom Video CEO Eric Yuan commented, “Our customers are increasingly turning to Zoom to help them create flexible work environments and empower true connections and collaboration. Proactively addressing these needs with Zoom’s expanding platform continues to be our focus in this dynamic environment.”
Orientation Lump of Coal
Zoom Video has issued downside guidance for the fiscal 2023 fourth quarter with EPS of $0.75 to $0.78 versus analyst consensus estimates of $0.82. Fiscal Q4 2023 revenue is expected to be $1.095 billion to $1.105 billion compared to $1.12 billion. Incidentally, revenues in constant currency are expected to be between $1.12 billion and $1.13 billion. Total fiscal year 2023 revenues are expected to be between $4.370 billion and $4.380 billion and between $4.42 billion and $4.452 billion in constant currency. Non-GAAP EPS for the full fiscal 2023 is expected to be between $3.91 and $3.94 with 304 million weighted average shares outstanding.
Analysts cut price targets
Piper Sandler left its Neutral rating unchanged but cut its price target to $77 from $84 per share. Analyst James Fish was disappointed with his fourth-quarter coal outlook and worried about the decline in the total customer base as the rate of new business continues to decelerate. Baird maintained his Outperform rating but reduced the price target for Zoom stock to $95 from $100 per share. Analyst William Power thought third-quarter 2022 results were solid, but his outlook remained mixed due to currency headwinds and weaker deferred revenue. Zoom remains a top 8.31% holding in the Ark Innovation ETF (NYSEARCA:ARKK) managed by popular fund manager Cathie Wood.
Weekly Descending Triangle Risk
The weekly candlestick chart illustrates the potential for a break out of the descending triangle as it makes lower highs against a flat low at $70.44. The stock continues to reject the falling 20-period weekly exponential moving average (EMA) now at $87.97. The reaction to Q3 2022 earnings further accelerated selling towards the low $70.44 area before a coil attempt failed to activate the Low Market Structure (MSL) weekly buy trigger above $81 ,50. Distribution volume increased at the time of the earnings release, but was moderate compared to nearly double the volume of the second quarter 2022 earnings sell-off. The weekly stochastic bounce through the 20 band stalled on selling pressure, setting it up for a potential bearish crossover as the stock approaches the flat lower trend line of the weekly triangle. As the channel between the upper descending trendline and the flat trendline narrows towards the top, stocks will either break out triggering the weekly MSL or eventually break through swing lows. This should resolve by the end of the year. The pullback support levels to watch are located at the swing lows of $70.44, $67.60, $64.75, $60.97, %57.59, $54.54 and $50, 55.
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