Zoom Video Communications Earnings Preview: ZM guns for $1B in Q2 revenue

All eyes for the Q2 Zoom Video Communications (NASDAQ: ZM) results after the close are focused on revenue. The reason is that the entire market wants to see if this beloved stock was just a stay-at-home play or if it can continue its category-killing revenue growth. Analysts have consensus earnings pegged at $1.16 per share on revenues of $990 million for the second quarter.

Zoom stock news: The more you perform, the more they expect

Over the past year ZM stock became the top darling of the stay-at-home stocks – the ones that saw their five-year outlooks condense into one year due to an upsurge in demand caused by COVID-19. In order to maintain communication without in-person meetings, Zoom’s popular video chat service dominated its legacy competitors. Zoom grew revenue by 295% YoY and levered free cash flow by nearly 240% in the same period.

In the last four quarters, revenue has continued to drive higher quarter after quarter, but the rate of growth between adjacent quarters has been falling steadily. Over the past year, these once heightened incremental quarterly revenue figures have dwindled from 17% to 14%, to 8% growth. The company and analysts now have incremental revenue growth to climb just 3.5% in Q2. With this deceleration presumably caused by the economy slowly opening back up and more corporations and institutions reverting to traditional in-person communication, the market is weary of how far this slowdown will continue.

If revenue comes in above $1 billion, expect the market to reignite around ZM stock. That psychological revenue figure gives many institutional investors the confidence to believe in Zoom’s long-term success in becoming a tech major. Also watch for discussion of Zoom’s intended merger with Five9 – the contact platform. Success on this strategy is of paramount importance for the narrative to strengthen around Zoom joining the big league of multi-segment cloud enterprises with the likes of Salesforce (NYSE: CRM).

Zoom technical analysis: Can ZM surmount $406?

Zoom had such a wild ride last year that it has mostly been in consolidation territory for all of 2021. The stock has dropped 8.8% in the past six months compared with the S&P 500’s 18.3% run. Since ZM stock’s apex on October 19, 2020 at $588.84, the stock fell under an overhanging descending trend line. Many investors thought the worst was over when ZM shares overtook the trend line on June 7. Since then, however, Zoom has put in a never popular double top on July 7 and August 5 near $406. Afterwards, ZM consummated a lower lower, signaling that the consolidation might continue.

With 2021’s stellar results alongside a dismal chart, Zoom will need to knock this Q2 earnings call out of the park in order to upend the stock's lacklustre performance so far this year.

ZM 1-day chart

---