Why Did Zoom Stock (ZM) Drop 15% After A Sales Increase?

zoom stock chart

Zoom Video Communications Inc (ZM) had another amazing quarter with a revenue jump of more than 350%, but the stock is crashed 15%.  However, Zoom stock has rocketed over 580% this year due to the coronavirus pandemic.

So investors may be scratching their heads and wondering, “Why is Zoom stock down?” The short answer is because of two reasons: Coronavirus vaccines and a decline in gross margins.

Coronavirus Vaccine: Experts have projected we will see at least two vaccines released shortly to the public. President Trump has promised super fast delivery of the vaccines.  Once the vaccines are in the public, it is expected that businesses will rop Zoom and start doing business in person.  The most optimistic timeline for this drop off would be approximately 3 months or the end of February.

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Chaim Siegel, an analyst at research firm Elazar Advisors, lowered his rating on Zoom stock from strong buy to buy. “(T)here’s going to be perceptual headwinds with Pfizer’s vaccine.”

Declining Gross Margins: Zoom has a serious problem when it comes to scaling and gross margins.  As the company scales, it has seen a decline.  Before the coronavirus, Zoom had an 80% gross margin, compared to a 66.7% now. It will likely continue to trend this way because of free users.

Zoom is well aware of their dwindling margins and trying to address it. Kelly Steckelberg, Zoom Chief Financial Officer, stated on a video conference call this week that gross margins are expected to remain under pressure because of the surge in free users and increasing server costs.

ABS REPORT

Is Zoom Stock (ZM) A Buy?

As much as I like Zoom stock (ZM), at this time I don’t believe it is a buy.  My personal experience is that stocks like Zoom are great if you catch the trend before everyone jumped on, but are also the best to jump off before everyone else does. Investors that have positions should consider winding them down. Although I don’t think the ZM will crash and become bankrupt, it is ripe to take a major drop because of the coronavirus vaccines, declining margins, and sudden rise in price.

Zoom Stock Pivots

Pivot Classic Fibonacci Camarilla Woodie DM
S3 170.97 310.57 439.97 225.32
S2 310.57 363.9 452.77 295.8
S1 394.47 396.85 465.56 364.92 422.32
P 450.17 450.17 450.17 435.4 464.1
R1 534.07 503.5 491.16 504.52 561.92
R2 589.77 536.45 503.95 575
R3 729.37 589.77 516.75 644.12

Zoom Stock 1 Day Moving Averages – BEAR

Exponential Moving Average (5) 444.27 Sell
Simple Moving Average (5) 448.4 Sell
Exponential Moving Average (10) 440.38 Sell
Simple Moving Average (10) 434.28 Sell
Exponential Moving Average (20) 444.04 Sell
Simple Moving Average (20) 435.44 Sell
Exponential Moving Average (30) 447.8 Sell
Simple Moving Average (30) 458.92 Sell
Exponential Moving Average (50) 440.94 Sell
Simple Moving Average (50) 474.18 Sell
Exponential Moving Average (100) 394.25 Buy
Simple Moving Average (100) 389.42 Buy
Exponential Moving Average (200) 313.12 Buy
Simple Moving Average (200) 278.67 Buy
Ichimoku Cloud Base Line (9, 26, 52, 26) 460.07 Neutral
Volume Weighted Moving Average (20) 428.53 Sell
Hull Moving Average (9) 465.95 Sell

 

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