Zoom Video stock price wavered after the company published its first-quarter earnings on Wednesday. ZM shares retreated to $72.50, down from this week’s high of $75.97. It remains about 16.6% below the year-to-date high of $87.20 and higher than the low of $57.37.
Zoom Video’s business is slowing
Zoom Video has lost momentum in the past few years as the pandemic boom ended and competition with Microsoft, Google, and Cisco soared.
Its annual results show that its growth has slowed significantly in the past few years. It made an annual revenue of $4.66 billion last year, up from $4.57 billion a year earlier.
This week’s results showed that Zoom’s revenue rose by 2.9% in Q1 to $1.17 billion. This revenue growth was driven by its enterprise division and offset by a 1.2% YoY drop in online revenue.
Its growth has slowed because the use of video communication has eased significantly since the pandemic years. Also, companies have options for their video software, with many of them opting to use Google Meet or Microsoft Teams. That’s because these firms already use Google and Microsoft’s solutions.
Video software is different from the others, like CRM and ERP in that a company can switch its service provider within a day.
Hiked guidance, balance sheet, and repurchases
On the positive side, the company hiked its forward guidance for the second quarter and full year. The management expects that its revenue this quarter will be between $1.19 billion, while the operating income will rise to between $460 million and $465 million.
Zoom Video expects its annual revenue to be between $4.8 billion and $4.81 billion, and that its operating income will be between $1.86 billion and $1.87 billion. The company has a long history of being highly conservative with its guidance, meaning that its numbers will be a bit higher than the guidance.
The other positive is that Zoom Video has a strong balance sheet and is repurchasing many shares. It ended the last quarter wth over $7.8 billion in cash and is implementing a $2.7 billion share repurchase plan. It repurchased 5.6 million shares last quarter and 21 million since last year.
Share repurchases are good since they reduce the outstanding ones and boost the earnings per share.
Zoom is also fairly valued as it has a forward price-to-earnings ratio of 14.5, lower than the sector median of 21. The challenge, however, is that the company lacks a clear catalyst that will stimulate it higher.
Zoom Video stock price analysis
The weekly chart shows that the ZM share price has remained inside a channel whose support and resistance points at $52.70 and $87.21. Its Average True Range (ATR) indicator continued falling, a sign of low volatility.
Zoom Video stock price is likely in the accumulation phase of the Wyckoff Theory. This phase is then followed by the markup phase, where an asset surges. If this happens, it means that the ZM stock price may rise to $100, up by almost 40% above the current level.
Read more: Zoom Video stock is in trouble, but a 130% rebound is possible
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