Why Zoom Stock Zoomed Past the Market Today

What happened

Zoom Video Communications (ZM 2.82%) was a popular Hump Day stock, rising by nearly 3% and well eclipsing the gain of the S&P 500 index. News of a closely followed investor’s big buy was the catalyst for the mini-spike in price.

So what 

That investor was none other than ARK Invest founder Cathie Wood. Despite some recent missteps, she remains doggedly bullish on the tech sector.  Two of ARK Invest’s exchange-traded funds (ETFs), ARK Innovation ETF and ARK Next Generation Internet ETF combined bought a total of 839,301 Zoom shares throughout Tuesday.

Wood and ARK Invest don’t typically offer running commentary for their purchases. It’s likely that this one is a “buy an incumbent stock on weakness” situation as Zoom really got dinged on Tuesday.

This was hardly shocking, as investors traded the shares down sharply after the video-conferencing leader reported its second quarter of fiscal 2023 results.

Zoom notched its fifth quarter in a row of more than $1 billion in revenue and managed to grow that line item by 8% year over year. It was still well in the black on the bottom line in terms of non-GAAP (adjusted) net income, even though that metric dove by 23%.

That top-line figures met analyst estimates, and profitability exceeded them, but on the down side, Zoom cut its full-year revenue and net-income guidance. Since stocks trade on anticipated future performance rather than any trailing success, this triggered the Tuesday sell-off.

Now what

Wood’s large-scale buys injected plenty of confidence into Zoom shares; we’ll see if the company can keep up the momentum. Although its name is nearly synonymous with video conferencing these days, and it’s done a good job of monetizing its business, it faces plenty of competition. After all, the barriers to entry with its basic services aren’t very high.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

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