Zoom share price: what to expect in Q4 earnings

Unlike most stocks right now, Zoom's [ZM] share price is soaring as coronavirus fears spread. On Friday, Zoom's share price shot up a whopping 11%, while the S&P 500 continued to plummet. See pictured, Eric Yuan, founder and chief executive officer of Zoom Video Communications Inc.

As a video conference producer, Zoom’s share price is on the up as its product helps people work from home and ride out a potential pandemic. But, with Q4 results out on Wednesday, is Zoom’s share price a long-term buy?

When is Zoom reporting Q4 results?

4 March

Why should investors care

Rising in falling markets

Zoom's share price is certainly benefiting from the belief that more people will work from home if the outbreak becomes worse. According to Rick Munarriz on Motley Fool:

“Teleconferencing is going to become even more popular as folks stay closer to home, making Zoom [stock] a winner despite its seemingly overvalued shares.”

“Teleconferencing is going to become even more popular as folks stay closer to home, making Zoom [stock] a winner despite its seemingly overvalued shares” - Rick Munarriz

But it's not just the coronavirus that is causing workplaces to look at teleconferencing solutions. White-collar workers increasingly have the option to work from home. Whether they are on Google Hangouts, Microsoft Teams or Zoom, meetings no longer have to happen in the same office.

As more and more companies introduce flexible working, Zoom could stand to benefit. Zoom's Q3 numbers saw a sharp rise in revenue thanks to winning new customers and expanding its services to existing customers. After all when coronavirus is, thankfully, a thing of the past people will still need to remote work.

Potentially overvalued

Since going public in April last year, Zoom's share price stock is up over 60%. While the coronavirus has partly led to an increase in buying, the stock was already on the ascendance as investors look for the next big thing in tech.

Now Zoom's share price could be considered overvalued and due a correction. Zacks points out that Zoom trades at a massive forward P/E ratio of 350. That's well above its industry average of 58x.

To maintain its toppy valuation, the company will need to show strong Q4 numbers and full-year guidance on Thursday. 

What do analysts expect for Q4 and beyond?

Will Zoom beat expectations? Well, it has done in the three quarters since its IPO. Q3's $0.9 earnings per share crushed the predicted $0.3.

Wall Street expects earnings to come in at $0.07 per share, down 22% from last quarter. Revenue is forecast at $176.55 million, a 5.9% increase.

Of the 21 analysts tracking the stock on Yahoo Finance, 16 rate it as a Hold, while six rate it as either a Strong Buy or a Buy.

Zoom share price vitals, Yahoo Finance, 03 March 2020

An average 12-month share price target of $82.13 is 21% below the current share price. And as of 13 February, a whopping 48% of floated shares were being shorted. This suggests that institutional investors think a correction is on the cards.

Zoom has yet to trade publicly for more than 12 months, so it's useful to look at analyst projections for Q1 2021. Here, analysts are forecasting for earnings of $0.06, a 100% growth on Q1 2020. Revenue is expected to come in at $185.7 million: a 66% increase. 

On balance, Zoom Video looks like a growing company. However, investors might want to wait until the share price returns to some level of normality before buying in.