Zoom Video share price on watch ahead of upcoming Q1 earnings

When does Zoom Video report earnings?

Zoom Video Communications Inc is set to release its Q1 financial results on 1 June, after market close.

What to expect?

Zoom Video has largely benefitted from the Covid-19 pandemic, as businesses rapidly adopt usage of video-conferencing platforms in light of travel ban and social distancing. A look at Zoom Video’s customers breakdown reveals that the company has seen a multiple-fold increase in customers from the pandemic, in line with a big spike in high-budget customers who had spent more than $100K on the platform. That said, a key concern for investors is that of growth peaking, considering that growth for its customers’ base has declined on a quarter-to-quarter basis over the past two quarters.

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In terms of geographical breakdown, an ongoing shift in revenue composition towards the EMEA and APAC regions may be expected to continue. This is in line with the company’s plans to expand its global footprints, particularly in Asia-Pacific which remains as its highest-growth segment on a year-on-year basis. This is also visible with its latest plans to open a new Research and Development centre and expand its co-located data centre in Singapore.

Other than its international expansion, improved enterprise adoption for its Zoom Phone may also be a key growth catalyst ahead. As of January 2021, the company has 10,700 Zoom Phone customers with more than ten employees. Risks to its growth includes competition from Microsoft Teams and Cisco Webex, where potential launch of new features and services may remain a threat to Zoom Video’s platform.

How to trade Zoom Video earnings

Zoom Video’s forward P/E currently stands at 84.3, commanding a significant premium over the technology sector median of 18.6 and the software & IT services industry of 20.1.

Being only listed in 2019, much of its valuation have been largely priced based on its future growth. Having benefitted directly from the boom in video-conferencing brought about by Covid-19, investors will be on the lookout for its post-pandemic growth momentum as economic activities continue to normalise. Previous upbeat earnings results were unable to spur a sustained rally, denoting that investors remain wary of its high valuation in light of decelerating growth to be expected ahead.

Currently, the stock has 12 buy recommendations, 14 holds and two sells. The Bloomberg 12-month consensus target price of US$422.95 suggests a potential 29.6% upside from the price of US$326.43 at the time of writing.

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Technical analysis

Zoom Video’s share price has seen lower trading volume since the start of the year, seemingly losing traction as an initial Covid-19 play with ongoing normalisation. Its share price largely traded within a near-term downtrend, as seen from its lower price highs and lower price lows since hitting its peak in October 2020.

That said, a near-term recovery in share price may be supported by a bullish divergence formed on the MACD indicator on its recent price lows. Should price move higher, it may find resistance at the support-turned-resistance price level of US$342, where prices faced rejection on previous three occasions. If prices failed to break into a higher high, we may potentially see a continuation of its downtrend where prices may retrace towards its near-term support level of US$280.