Zoom Video (NASDAQ:ZM) has grown from an obscure but user-friendly video communication platform into a verb synonymous with video conferencing and remote engagement, driven by the Covid-19 pandemic. Zoom Video was one of the main benefactors of the pandemic that helped usher in the “new normal.” hybrid works in a post-pandemic world. While other video calling tools were available, Zoom’s incredibly simple interface brought video conferencing to the mainstream. The company’s growth has since peaked normalization continues to enter. The question is where the baseline is for Zoom and what catalysts can help accelerate growth again. The company competes with many software companies for teleconferencing and business collaboration Adobe (NASDAQ:ADBE), Microsoft Teams (NASDAQ:MSFT), Sales Force (NASDAQ:CRM), Google Workspace (NASDAQ: GOOG), Cisco Webex Meetings (NASDAQ:CSCO) even Verizon (NYSE: VZ) with the BlueJeans Meetings app. The company wants to become a unified communication platform with the addition of e-mail and calendar functions. It has also partnered with AMC Entertainment (NYSE: AMC) to turn some locations into Zoom meeting rooms
Growth continues to slow
On November 21, 2022, Zoom Video announced third quarter results for fiscal 2023 for the quarter ended October 2022. The company reported earnings per share (EPS) of $1.07, beating consensus analyst estimates for a profit of $0.84 with $0.23. Revenues grew 4.9% year-over-year (yoy) to $1.1 billion, matching consensus analyst estimates of $1.1 billion. Customers with an annual run rate (ARR) of $100,000 increased 31% to 3,286. Business customers were up 14% year-over-year to 209,300. Operating revenue increased 20% year over year to $614 million. Average online churn per month was 3.1%, 60 basis points lower than 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 looking to Zoom to help them enable flexible work environments and enable authentic connections and collaboration. Proactively addressing these needs with Zoom’s growing platform remains our focus in this dynamic environment.”
Lump of coal accompaniment
Zoom Video provided downward guidance for the fiscal fourth quarter of 2023 with earnings per share between $0.75 and $0.78 versus consensus analyst estimates of $0.82. Revenue for the fourth quarter of 2023 is expected to be between $1.095 billion and $1.105 billion, versus $1.12 billion. Incidentally, revenue in constant currency is expected to be between $1.12 billion and $1.13 billion. Total revenue for fiscal 2023 is expected to be between $4.370 billion to $4.380 billion and $4.42 billion to $4.452 billion in constant currency. Non-GAAP EPS for full fiscal year 2023 is expected to be between $3.91 and $3.94 with 304 million weight average shares outstanding.
Analysts cut price targets
Piper Sandler leaves its neutral rating unchanged, but lowers its price target from $84 to $77 per share. Analyst James Fish was impressed with the outlook for the fourth quarter of 2019 and worried about the declining overall customer base as the number of new customers continues to slow. Baird maintained its Outperform rating, but lowered the price target for Zoom shares from $100 to $95 per share. Analyst William Power believed that Q3 2022 results were solid, but the outlook remained mixed due to currency headwinds and weaker deferred earnings. Zoom remains at the top with 8.31% in the Ark Innovation ETF (NYSEARCA:ARKK) managed by renowned fund manager Cathie Wood.
Weekly falling triangle risk
The weekly candlestick chart illustrates the potential for a downside breakdown of the triangle as it makes lower highs at a flat low of $70.44. Stocks continue to reject the falling 20-period weekly exponential moving average (EMA), now at $87.97. The Q3 2022 earnings response further accelerated sales to the low of $70.44 before an attempted flush failed to activate the weekly market structure low (MSL) buy trigger above $81.50. Distribution volume increased after the earnings announcement, but was subdued compared to nearly double the volume at the Q2 2022 earnings sell-off. The weekly stochastic bounce through the 20 band stalled on selling pressure, putting it back down a possible crossover as stocks near the weekly triangle’s flat lower trendline. As the channel between the descending upper trendline and the flat trendline tightens towards the top, stocks will break through triggering the weekly MSL or eventually break through the swing lows. This should be resolved by the end of the year. Pullback support levels to watch sit at the $70.44 swing low, $67.60, $64.75, $60.97, %57.59, $54.54 and the $50.55.