To The Moon

Zooming in on Fundamentals

Zoom Video Communications Inc., $Zoom(ZM)$ reports Q1 FY2023 earnings after market close on May 23.

Key Metrics ZM. source: Zack's

For Q1 FY2023, ZM is expected to report EPS estimate of $0.87 (-34.1%) from previous quarter year to year (y.o.y) and this decline contrasted sharply from over +560% in the previous reporting period.

Consensus revenue estimate is expected to reach $1.073 Bil (+12.3% y.o.y) a massive slowdown from growth of +191.3% in the previous reporting period.

The number of clients with over $100K revenue in TTM is used as a proxy for its ability to grow its corporate business. While it still grows at +49.9% y.o.y, it also represents a slowdown of over +150% in the previous reporting period. So on just these key metrics it looks gloomy for ZM.

Thus, investors are likely to look for catalysts for growth that will also grow future revenue. Two could be in the cards:

• Whether the company could capitalise on the future hybrid work environment where remote and on-site working arrangements necessitate use of technology provided by Zoom and either announce increase in capturing market share or clients numbers from competitors such as Microsoft Teams, RingCentral or Google Workspace among others.
• If it could partner with other digitalisation providers to offer integrated solutions for companies. One area is integration with $ServiceNow(NOW)$, to provide seamless communication using Zoom and digital workflow for business using capabilities by ServiceNow. Zoom has appointed ServiceNow CEO Bill McDermott to its board in Mar 2022, and there could be announcement of future collaborations between them.

Zooming in on Technicals

Reviewing Weekly Chart of ZM since IPO in 2019, we see price shot up during the COVID-19 pandemic in first quarter of 2020, where it benefitted massively from the lockdown and study- and work-from-home economy. A blow-out quarter reported in Sep 2020 saw the stock rose 41% in a day, reaching an all-time high (ATH) of $588.84, before profit taking saw the price retraced lower. Since then, with reopening of economies, easing of travel restrictions and returning to workplace and face to face learning gathering momentum, the stock price has dropped lower, on concerns if it could maintain its corporate and paying customers’ base, and potential for future growth.

High inflation and fear of rate hike affecting high growth company such as ZM exacerbated further sell-off in the stock since the start of 2022. With the stock now trading below its 20 and 50 MA and making lower highs and lower lows, it is in a confirmed downtrend. As of close of May 20, ZM stock price of $89.74 represents a drop of -84.76% from its ATH.

Weekly Chart ZM

Zooming in further to Daily Chart of ZM, with Fibonacci retracement levels from recent high to low and moving averages lines, we could map out possible price action scenarios post-earnings.

Daily Chart ZM

Gloom Scenario

If earnings miss and ZM guides poor forecast for business, price could fall to first target around $79.03 (-11.93%) to recent low of the Fib levels. Further downside momentum would see price reaching a longer term low at 59.95 (-33.21%), which is in the realms of possibility, as priced dropped to this level before rebounding in the early days post ZM IPO. There is a possibility of a price crushed (big drop) as we have seen in other mega caps from Amazon to Netflix to Walmart in this earning season if there is earnings miss or weak guidance.

Bloom Scenario

If earnings beat and ZM provides positive forward guidance, price could rise to first target $105.42 (+17.47%) to 50MA trendline. Further upside would be price reaching 0.236 Fib level of $129.13(+43.89%). Such high percentage gain, while of very low possibility, has been achieved previously, if there is another blow-out quarter.

For Technicals, the situation is less clear, as price has almost bottomed, or with one more leg lower, price might then rebound or bloom again.

I would look for confirmation of price direction post earnings, before initiating positions in $Zoom(ZM)$. This is given potentially double digit price movements in either bullish or bearish directions, depending on whether gloom or bloom scenario plays out. One would not want to be caught in the wrong side.