Shares of Zoom Video Communications (NASDAQ:ZM) are down nearly 3% today after the communications technology company once again reported disappointing results. With shares now down almost 80% compared to all-time highs set in October 2020, the question arises whether now is the right time to invest in Zoom?
Significant Growth Deceleration
Zoom was one of the biggest beneficiaries of a major shift in the work routines following the COVID-19 outbreak. Shares of the company skyrocketed 850% in 10 months from December 2019 to October 2020 on high volume as corporations around the globe embraced work-from-home work regimes. At this time, the fear of missing out occurred increasingly among investors and even P/E ratios of >100 were not perceived as a warning signal.
As many other pandemic beneficiaries, Zoom benefited from the pull-forward effect. In essence, the pandemic created a bigger-than-expected demand for Zoom’s products, which then translated into inflated earnings.
However, the demand has proved to be not sustainable as the world returns to normalcy. Hence, investors have been served with a reality check that yielded a massive correction in Zoom shares, with the fitness company Peloton experiencing the same scenario.
For instance, Zoom yesterday reported its Q4 sales increased 21% compared to a year-ago period, which is down from 35% growth in the prior quarter.
Weak Guidance Scares Away Investors
Zoom said it earned $1.29 per share to top the analyst consensus of $1.06. Revenue came in at $1.07 billion, again better than the analyst consensus of $1.05 billion.
However, Zoom shares suffered in after-hours trading after the company said it now serves 509,800 customers that employ over 10 people at the end of January, which is down from 512,100 in October.
For this quarter, Zoom is looking to generate between $1.07 billion to $1.075 billion, which translates into a 12% growth rate. This is also lower than the analyst consensus of $1.1 billion in Q1 revenue.
On a full-year basis, Zoom is looking to generate sales between $4.53 billion to $4.55 billion, which would imply a growth rate of less than 11%. Analysts were looking for $4.71 billion, hence the move lower in Zoom stock.
Should You Buy Zoom Stock?
As mentioned earlier, Zoom shares are down 78.6% from the all-time highs set in October 2020. A move lower had been relentless, with the stock now approaching a key psychological level of $100.
This zone also coincides with strong horizontal support that comes around $107. This zone acted as resistance and then as support historically, hence investors should expect a reaction.
The February low of $114.26 is also likely to provide strong support, with some investors hoping for the development of a double-bottom chart pattern. In both cases, it is likely that Zoom will soon stage a relief rally, given the magnitude of this selloff.
Summary
Zoom stock price has dipped once again after the quarterly earnings report as bears continue to be in control of the price action. Shares are now approaching some important support levels as bulls hope that the expectation reset is finally completed, paving the way for a meaningful relief rally.
Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.
