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Why Zoom Stock Soared This Week

What happened

Shares of Zoom Video Communications (ZM 3.20%) trounced the market this week by rising 23% through 2:45 p.m. ET Friday compared to a 6% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally erased just a small portion of recent losses for the stock, which remains down nearly 40% so far in 2022. But it reflected rising optimism on the part of investors that Zoom will find a path for growth.

A person smiling while looking at a tablet.

Image source: Getty Images.

So what

The company reported this week that sales rose 12% for the fiscal first quarter than ran through late April. While that marked a deceleration compared to soaring gains in 2020 and 2021, the expansion still reflected solid growth despite a return to more-normal social trends.

Zoom also reported strong demand for its enterprise services, healthy renewal rates, and ample cash flows. All these factors helped persuade investors to bid the stock higher after having pushed it down through most of the year.

Now what

The software services specialist appears to have a clearer path toward continued growth even after having added roughly $4 billion to its annual sales footprint in just two years. That expansion involves catering to enterprises that are transitioning to a hybrid work environment.

Zoom also aims to add many more services to its portfolio beyond its videoconferencing platform, including chat rooms and more-comprehensive collaboration spaces.

These initiatives will pressure earnings over the short term as Zoom spends more on development and sales. But this week’s results showed that the company can make these investments while remaining solidly profitable. Given the stock’s thumping heading into the first-quarter earnings report, it’s no surprise that this news caused a sharp rebound in the stock.




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