Company / Analytics

Analytics, 01 June 2020

Zoom and Slack to announce Q1 2020 earnings

Technology stocks essential to the work from home measures brought by the coronavirus are some of the stocks that have gained during this period. Zoom Video Communications is one of the platforms that have been made famous thanks to the COVID-19 pandemic. Together with Slack Zoom will be releasing its earnings this week, and analysts suggest the stocks could make big moves in the next few trading days.

Last week stocks ended higher boosted by optimism over the reopening of economic activities. For instance, the S&P 500 edged closed a second consecutive week of strong gains and its best two-month performance since 2009. The performance of the companies that will release their earnings this week, will play some key role in the market’s performance this week.

Zoom Video Communications (NASDAQ: ZM)

Expectations are high for Zoom’s earnings report on Tuesday. Zoom has seen soars in its userbase in recent moths, event before Covid-19 sent it to record levels. Much of investor optimism in Zoom is already reflected in its stock price which has more than doubled since the beginning of the year. The stock is up 133% during the last six months and 64% in the last three months alone. Investor optimism is fueled both by its strong business performance before the coronavirus pandemic and Zoom’s perfect positioning to benefit from the rise of work-from-home trends during the pandemic.

Zoom demonstrated outstanding business results in its most recent quarter. Before its IPO last year, the company had a $1 billion valuation. Since the start of the coronavirus outbreak, Zoom has seen its market value increase exponentially, reaching $42 billion (£34.2 billion) by 31 March. Between the beginning of February, when the virus was only beginning to go global, and 23 March, Zoom’s share price more than doubled from $76.30 to a peak of $159.56.

As of May 15, 2020, Zoom’s market capitalization had skyrocketed to $48.8 billion, despite posting revenues of only $623 million over the past year, making Zoom’s worth more than 7 Biggest Airlines – Delta, United, Lufthansa, IAG and Air France KLM combined.

Zoom vs airlines capitalization

The pressure is on for its CEO Eric Yuan and his team to show continued progress in the user base, operating cash flow and earnings, as big gains in these metrics would give Zoom its best chance at investing heavily in the business as well as further expanding its user bases – especially loyal paying customers. Zoom share price is continuing its rising trend. The share closed trading at $179.48 and was trading at US$200.72, up 11.84% 01 June, 11:25 GMT-4.

What Does the Future Hold for Zoom?

Zoom currently enjoys the largest market share within video conferencing technology stocks, and as the trend towards remote working gains pace, it’s worth considering its longer-term future growth prospects.

While there is little sign that the remote working arrangements necessitated by COVID-19 will be eased anytime soon, Zoom’s recent success is a product of its circumstances. Whether the impressive growth will last is a question investors will gauge from Zooms Q1 results to be released this week (Tuesday 2nd June).

Slack Technologies Inc (WORK: NYSE)

Slack will release its earnings on Thursday this week, and investors expect good news from its Q1 2020 report. Slack is an enterprise communication platform that was already rolling before the pandemic and is likely to have strengthened its position.

While the company has failed recently – its shares plunged after it posted its fourth-quarter results in March - it’s still a favourite for many businesses who use it as an office collaboration platform. Investors who track the stock are predicting a 40% sales growth for the quarter with revenue climbing toward $190 million. Slack is still expected to post a net loss, though, as it prioritizes market share in its battle against well-capitalized rivals such as Microsoft.

If Slack can beat the odds and build a substantial user base, then its platform software platform will produce high returns for investors over time. The challenge will be if rivals slash their prices to win market share and limit Slacks earning potentials.

Slack’s last fourth-quarter results show that the company experienced growth in all the right places. The total number of paid customers rose 25% annually to 110,000. Of those customers, 893 spent more than $100,000 annually, up 55% from 645 last year, and those larger customers accounted for 47% of its fourth-quarter revenue - up from 41% a year earlier. On the other hand, revenue rose 49% annually to $181.9 million, beating estimates by nearly $8 million but marking its slowest growth rate since its public debut last in June 2019.

The company recently announced a $600 million debt offering due in 2025, convertible into cash, stock, or a combination of both depending on the holder’s preference. Slack still has room to grow and investors can consider this stock after examining its books, and prospects. The Thursday results will offer clues to its performance during the COVID-19 pandemic and provide scenarios on where Slack will be in five years.

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