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Can the Zoom share price rebound after Cathie Wood buys the dip?

The Zoom share price has fallen 17% this week, as it warned of a growth slowdown. But Cathie Wood’s ARK Invest has bought 600,000 more shares, as a key report highlights that hybrid working may be here to stay.

At the beginning of 2020, Zoom (NASDAQ: ZM) was worth $67 per share. When the pandemic struck, schools, workplaces and extended families immediately went from seeing each other in person to using video conferencing technology to communicate. The Zoom share price rocketed to $559 by 16 October 2020, before losing almost two-thirds of its value to hit today’s price of $206.

The company released Q3 results on 22 November and saw its share price immediately plunge from $248 to below $200 during trading the next day. Cathie Wood spotted an opportunity to buy the dip, and her ARK Innovation ETF (ARKK) fund bought up 538,573 shares, while her ARK Next Generation Internet ETF (ARKW) bought 106,537.

Her confidence in the video conferencing company is a good sign for the stock. Between 20 March 2020 and 12 February 2021, ARK Innovation rose 313% from $38 to $157. This was primarily due to her successful high-stake investment in Tesla, in a move that was deemed risky at the time.

And while Wood’s investment in Zoom is also a risk, the stock was worth three times its current value just over a year ago. And as hybrid working could become an established norm, it might return to those heights again.

Zoom share price: Q3 results

Zoom reported a total revenue rise of 35% year over year to over $1 billion. However, revenue growth in Q2 was 54%, and this growth slowdown was a core reason for the share price fall. Moreover, the company decided not to proceed with a planned $14.7 billion purchase of cloud contact centre platform Five9, instead planning to launch their own solution in 2022.

But the company is in a strong financial position, boasting a cash and marketable securities balance of $5.4 billion. Meanwhile, the number of customers contributing more than $100,000 to TTM revenue rose to 2,507, up 94% year over year.

And after adjusting for one-off expenses, non-GAAP income from operations in Q3 hit $411.3 million, up from $290.8 million in Q3 of the previous financial year. And non-GAAP operating margin was a huge 39.1%.

CEO Eric Yuan commented that ‘we expect to close the year between $4.079 to $4.081 billion in total revenue, representing approximately 54% year-over-year growth, alongside strong profitability and operating cash flow growth.’ While growth may be slowing, the company has the financial firepower to consolidate its huge market gains from the past two years.

Hybrid working

According to the US Bureau of Labor Statistics, a record 4.4 million Americans left their jobs in September, while a similar employment picture is being painted on this side of the Atlantic. A key reason for this ‘great resignation’ is that some employees are refusing to go back to the office full-time and are leaving for companies that offer hybrid working or have gone fully remote.

And Yuan believes that ‘Zoom is placing people at the centre of our communications platform, connecting their disparate work streams into our technology…we are well on our way to becoming an indispensable platform for enterprises, individuals, and developers to connect, collaborate, and build in the flexible hybrid world of work.’

OC Tanner’s 2022 Global Culture Report analysed the perspectives of 38,000 employees and employers from 21 countries, including 2,500 from the UK. Director Robert Ordever said that’ office-based job seekers are now expecting hybrid working to be the norm.’ In what might be a wake-up call for employers, 59% of job seekers cited home working flexibility as a critical factor when applying for a new job, compared to just 42% for childcare.

If the home working revolution continues apace, the Zoom share price could rise again soon. And with Cathie Wood backing the stock, it might be a dip worth buying.

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*Based on revenue excluding FX (published financial statements, June 2021).

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