Shares of communications platform Zoom Video Communications (NASDAQ: ZM) dropped on Tuesday after the technology company reported financial results for its fiscal third quarter of 2025. Everything in the quarter was actually fine. But going into the report, Zoom stock was at a two-year high and had risen over 50% in just a few months.
It seems that financial results weren't quite inspiring enough to keep investors from taking recent profits off of the table. And that's why Zoom stock was down about 8% as of 2:45 p.m. ET.
The beat and raise was modest for Zoom
To reiterate, Zoom's financial results beat expectations on both the top and bottom lines. Moreover, management even raised its full-year guidance. Previously its guidance was for revenue of $4.630 billion to $4.640 billion, whereas now the revenue guidance is modestly higher at $4.656 billion to $4.661 billion.
Similarly, Zoom's management expects full-year adjusted earnings per share (EPS) of $5.41 to $5.43, whereas before it only expected adjusted EPS of $5.29 to $5.31.
Beating and raising guidance is good. But consider that Zoom's Q3 revenue was only up 3.6% year over year and guidance is only modestly higher. That's why investors weren't more upbeat about the report.
One thing to watch
One thing is for sure: Zoom is a profitable business with tons of cash. The company has $7.7 billion in cash, cash equivalents, and marketable securities. And it's on pace to generate about $1.6 billion in full-year free cash flow. With this, it's looking to give back to shareholders with a total buyback plan of about $2 billion as of this writing.
The problem is that Zoom already repurchased 4.4 million shares in Q3 and yet the outstanding share count still went up due to stock-based compensation. Buyback plans boost the share price when the number of shares go down. So investors should keep an eye on stock-based compensation from here because it is one of the issues that's preventing Zoom stock from performing better.
Should you invest $1,000 in Zoom Video Communications right now?
Before you buy stock in Zoom Video Communications, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Zoom Video Communications wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $833,545!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of November 25, 2024
Jon Quast has positions in Zoom Video Communications. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
