Hot rocket Zoom Video Communications, Inc. (ZM) reports earnings after Tuesday's closing bell, with Wall Street analysts expecting a profit of $0.10 per share on $202.5 million in first quarter 2020 revenue. The remote conferencing company beat top- and bottom-line fourth quarter 2019 estimates in early March, triggering narrow range action, ahead of a momentum-fueled advance that added about 60% to the stock price in just five sessions.

High volatility set into motion after disclosures about privacy and security holes that exposed millions of users. The stock has recovered after two major downswings, but price rate of change has slumped badly in the past two months, adding just 15 points to the early March peak. Accumulation readings are lagging as well, with many traders and investors choosing to take profits and hit the sidelines.

Security Issues Still in Play

Zoom responded with a series of initiatives to address the security holes, but many analysts believe that commercial customers may have moved to other video platforms, including Facebook, Inc.'s (FB) Workplace and Microsoft Corporation's (MSFT) Teams. The ultimate impact of the controversy is hard to evaluate ahead of this week's confessional because Zoom has provided few user metrics since the disclosures.

In addition, Americans and Europeans are slowly heading back to physical workplaces, reducing the need for conferencing services. As we've seen with other companies that benefited from the pandemic shutdowns, market players have been dumping shares after first quarter releases and transitioning capital into beaten-down companies that have grown relatively cheap due to first quarter revenue destruction.

The accumulation pattern also raises a red flag, topping out in March and entering a distribution phase that has carved two lower highs even though the stock is now trading within a few points of April's all-time high at $181.50. However, that isn't predictive without confirmation through other indicators, and neither momentum nor relative strength readings are showing signs of slowing down or rolling over.   

ZM Daily Chart (2019 – 2020)

The company came public at $65.00 in April 2019 and entered an immediate uptrend that topped out just above $100 in June. The stock then entered a persistent decline, cutting through the IPO opening print in October before bottoming out at $63.74, ahead of a successful test of the low in December. The subsequent uptick stalled in the mid-$70s in January, yielding a short-term consolidation, followed by a strong February rally.

The uptrend completed a round trip into the 2019 high on Feb. 20, ahead of an immediate breakout that generated exceptionally high volatility and counter-movement. The stock carved three higher highs and two higher lows into the April peak and rolled over, adding a third higher low on May 1. Price action has quieted down in the past month, with a steady but less dynamic uptick failing to reach the April high.

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in late March, a month ahead of price, and entered a decline that carved two distribution waves into the end of April. Buying power since that time has failed to erase the volume deficit, and OBV is still situated below the March, April, and May highs. Given this set-up, the company may need to blow away expectations during the earnings release to generate buying interest or risk a reversal that reaches the 50-day exponential moving average (EMA) below $150.

The Bottom Line

Zoom stock has rocketed higher in 2020, underpinned by the coronavirus pandemic, which has forced many businesses around the world to send home employees and switch to video conferencing. While this paradigm shift should generate a permanent increase in revenues, total eyeballs could drop as many folks go back to work at physical locations.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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