On Jun 2 after the bell, video-chat service Zoom Video Communications (NASDAQ:ZM) ZM crushed estimates for its Q1 earnings. The company generated $328.2 million in revenues, up 169% from the year-ago period. The reported figure surpassed the Zacks Consensus Estimate by 61.64%. The company reported 20 cents per share in adjusted profit during the three-month period, beating the Zacks Consensus Estimate of 10 cents.
Zoom said their number of customers with more than 10 employees grew by 354% to 265,400. This compares to earnings of 3 cents per share a year ago. However, shares slumped more than 1% after hours.
Why Was There No Price Jump Despite Blow-Away Earnings?
Zoom’s latest reported success has been largely priced in at the current level as the stock was a true coronavirus winner. Remote working and the need for video conferencing have become the pandemic protocol globally and contributed to the Zoom’s achievement materially. Zoom shares have gone up 205% this year and in fact had surged just ahead of the earnings release too. The stock currently has a Zacks Rank #3 (Hold).
If this was not enough, the company reported that it “peaked at over 300 million daily participants, free and paid, joining Zoom meetings in April 2020, up from 10 million in December 2019.” However, the company has been barred by many governments, corporations and institutions lately due to security concerns. Zoom’s popularity slumped a bit in May.
What Lies Ahead?
Zoom expects the current quarter to be another winning one. It expects between $495.0 million and $500.0 million in revenues for Q2 of its fiscal 2021. The Zacks Consensus Estimate is pegged at $222 million.
For the full-fiscal year, Zoom anticipates revenues between $1.775 billion and $1.800 billion. Numbers consider both factors like rising “demand for remote work solutions for businesses” and “increased churn in the second half of the fiscal year” when many resume office. The Zacks Consensus Estimate is pegged at $925 million.
Since expected revenue growth for future quarters is way ahead of Wall Street expectations, we believe Zoom shares’ rally will renew after a pause. Till then, investors not interested in taking new positions in the stock may find cloud ETFs as a better bet.
Why Cloud ETFs?
Zoom has 5.08% exposure to Global X Cloud Computing ETF CLOU and 3.1% focus on WisdomTree Cloud Computing Fund WCLD. Zoom comes from a favorable Zacks industry (placed at the top 10% of total 250+ industries in the Zacks universe). So, it is better to bet on the industry itself and lock in the power of other cloud operators. WCLD has a Zacks Rank #2 (Buy) while CLOU has a Zacks Rank #3 (Hold).
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