Zoom Video Communications Inc (ZM) is currently down 12% and strong bear trend. Earnings are in 4 days and I think they will be disappointing, but the most serious concern will be margins.
Investors may be scratching their heads and wondering, “Why is Zoom stock down?” The short answer is because of three reasons: Coronavirus vaccines, a decline in gross margins, and overbought stock price.
Coronavirus Vaccine: Several vaccines with millions of doses are now in the public. In the second part of the year, it is expected that businesses will drop Zoom and start doing business in person. The most optimistic timeline for this drop-off would be Spring/Summer.
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 its 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.
Overbought: Looking at the technical indicators (see below) most are showing ZM being over-bought. The bear trend is very strong and poor earnings will likely have the share price continue down.
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 | 222.52 | 295.86 | 351.90 | 258.99 | — |
| S2 | 295.86 | 323.88 | 358.62 | 295.05 | — |
| S1 | 333.97 | 341.19 | 365.35 | 332.33 | 351.59 |
| P | 369.20 | 369.20 | 369.20 | 368.39 | 378.01 |
| R1 | 407.31 | 397.22 | 378.79 | 405.67 | 424.93 |
| R2 | 442.54 | 414.53 | 385.52 | 441.73 | — |
| R3 | 515.88 | 442.54 | 392.24 | 479.01 | — |
Zoom Stock 1 Day Moving Averages – BEAR
| Name | Value | Action |
| Exponential Moving Average (10) | 401.12 | Sell |
| Simple Moving Average (10) | 412.2 | Sell |
| Exponential Moving Average (20) | 401.69 | Sell |
| Simple Moving Average (20) | 405.42 | Sell |
| Exponential Moving Average (30) | 399.55 | Sell |
| Simple Moving Average (30) | 397.35 | Sell |
| Exponential Moving Average (50) | 399.2 | Sell |
| Simple Moving Average (50) | 387.05 | Sell |
| Exponential Moving Average (100) | 392.41 | Sell |
| Simple Moving Average (100) | 424.23 | Sell |
| Exponential Moving Average (200) | 347.06 | Buy |
| Simple Moving Average (200) | 353.41 | Buy |
| Ichimoku Cloud Base Line (9, 26, 52, 26) | 401.79 | Neutral |
| Volume Weighted Moving Average (20) | 407.28 | Sell |
| Hull Moving Average (9) | 374.38 | Buy |
