Today's Real Money 'Stock of the Day' is definitely a tougher one to analyze. Zoom Video Communications (ZM) has been public for so little time. That being said, the company planned out its first public report well. The way to come public is to crush those estimates on your first report and Zoom did exactly that. The company reported earnings per share of $0.03 when Wall Street only expected a breakeven quarter. Revenue of $122 million easily surpassed estimates of $111.73 million.
Guidance of $0.01 - $0.02 EPS for next quarter equals a raise as again the expectations were for breakeven. Zoom doubled-down by raising revenue expectations from $123.25 million to $129 - $130 million. The question I have is on the full year guidance. Management increased full year revenue by $10 - $15 million with full year earnings of $0.02-$0.03. Given the company already made $0.03 this quarter and expects to add another penny or two next quarter, then the second half of the year will actually see zero EPS or even a penny loss. Once we encompass the revenue beat in the most recent quarter and expected beat next quarter, second half revenue actually looks light.
Normally, I'd say yes, but I believe Zoom is playing the game of under promise and over deliver. We probably won't know until next quarter, but if we see another beat and raise, then we'll know for sure. My guess is that's exactly what we'll see.
While a $21 billion market cap for a company basically running breakeven and trading at nearly 40x time sales, Zoom's results were impressive. It grew its 10+ employee customers 86% year-over-year to 58,500. It also had 405 customers contributing more than $100K in trailing 12 month revenue, an increase of 120% year-over-year.
There's not much we can draw from the few weeks of trading in terms of price action. The stock did break above a large wedge pattern formed on the 2-hour chart. Now, we should watch for consolidation action to occur in this box on the upper right. A break below $92 should cause a retest of $88-$90. The logical thought here is buyers push the stock to $100 for no other reason than human nature loves big, round numbers. For now, buying $92, selling $98-$100 appears to be the trade with a hard stop below $92.
I don't believe the momentum will stop on this one in the near future, so until there's a break in the technical picture, my view is to look long rather than short.