Zoom Video (ZM) - Get Report was once one of the hottest initial public offerings on Wall Street. But lately no one wants to touch the stock. Shares are down about 10% in trading Friday after the company delivered its third-quarter earnings.
The results were pretty good, which makes this selloff a bit puzzling. As the stock nears a critical point of support though, bulls could be looking at an attractive risk/reward long position in the not-too-distant future.
Earnings of 9 cents a share topped estimates by 6 cents, while revenue of $166.6 million surged almost 85% year over year and beat expectations by more than $10 million.
Guidance was well above expectations for next quarter too. Management expects earnings of 7 cents a share with revenue in a range of $175 million to $176 million. Consensus expectations called for profit of just 4 cents a share on revenue of $165.2 million.
Of course, management also gave a big boost to its full-year revenue and earnings outlooks, which also were well above consensus expectations.
So why is this one falling? It’s an odd reaction to a beat-and-raise quarter, but it may spell opportunity if investors can get the stock for a bit cheaper.
Trading Zoom Video Stock
Zoom Video's stock was priced in its April IPO at $36 a share. Despite rallying to more than $100 just two months later, ZM has stock lost a bulk of the momentum that had carried it higher.
Over the last few months, the stock has gone on to make a series of lower highs, highlighted by downtrend resistance (blue line). Now, shares are below all of its major moving averages, and are dangerously close to the post-IPO and October lows.
Those marks come into play between $60 and $61.
More aggressive traders can consider a long position on Friday’s decline, knowing that they can park a stop-loss just below key support. More conservative bulls may find it more advantageous to wait for a potentially further dip down into this support zone.
Both plays have their risks. The aggressive bull risks a larger drawdown in their position - even if support holds and they end up being right. The conservative bull risks waiting for too perfect of a setup and missing the possible rebound.
Of course, both will turn out to be losers if support fails and shares break lower. But that’s the risk that traders take. On a rebound, let’s see if ZM can erase its post-earnings losses and rebound back up toward its 50-day moving average near $70.