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Nasdaq Today: Zoom Stock Leads the Nasdaq 100 Higher; Zscaler Delivers on Earnings

By Dan Caplinger – May 29, 2020 at 12:49PM

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Stocks in the Nasdaq outpaced their counterparts elsewhere.

Friday was generally a down day for the broader stock market, but the news for the Nasdaq Composite (^IXIC 0.95%) was better. Shortly before noon EDT today, the index posted a gain of 0.2%, and the Nasdaq 100 Index of top Nasdaq stocks saw even larger gains of around 0.4%. That was considerably better than losses of nearly 0.75% for the Dow Jones Industrials.

Whenever investors have been nervous about the prospects for the overall economy weathering the coronavirus crisis, they've tended to gravitate toward the companies that are successfully helping businesses and their workers cope during the pandemic. Zoom Video Communications (ZM 3.59%) was the leading gainer in the Nasdaq 100, and some of the optimism surrounding the video collaboration company came from even stronger gains from cloud security specialist Zscaler (ZS 1.86%).

Zooming higher

Shares of Zoom Video Communications were up nearly 6% at midday on Friday. The videoconferencing platform provider has been a go-to stock for investors concentrating on companies that provide key solutions for businesses during the pandemic, and today was no exception.

Person at desk with 12-person Zoom call pictured on screen.

Image source: Zoom Video Communications.

Even before lockdowns of nonessential businesses forced millions of employees to find ways to work remotely, the work-from-home movement had already started gaining steam. Being able to offer prospective employees the flexibility of remote work can sometimes mean the difference between attracting top talent and losing people to competitors. Moreover, with so many large companies having offices spread out across the globe, Zoom's high-quality videoconferencing services can save a lot of money in travel costs even when international borders are open.

More impressive has been Zoom's ability to ramp up as quickly as it had to when the pandemic struck. Going from tens of millions of participants to hundreds of millions might ordinarily have been an insurmountable scaling problem, but Zoom has been able to handle the increased traffic. Despite some bumps in the road, CEO Eric Yuan is inspiring increased confidence in his ability to handle situations effectively.

There's no doubt that Zoom stock is highly valued. Whether it's overvalued, though, depends on how well it can capitalize on the opportunity it has and hang on to its newest customers even when conditions get closer to normal.

Keeping businesses cybersafe pays off for Zscaler

Meanwhile, Zscaler saw its stock soar, climbing 26% as of midday Friday. The cloud security specialist posted great results during its fiscal third quarter, and investors expect the good times to continue.

Zscaler's numbers tell the story. Revenue was up 40% for the quarter versus year-earlier levels, accelerating from its growth rate three months ago. Adjusted net income climbed more than 20% year over year, and free cash flow nearly doubled from what the company brought in during the year-ago period.

Much of Zscaler's success came from its aggressive reinvestment in its own business. Even when some of its cloud-based peers were looking at being more conservative due to worries about liquidity and business disruptions from the pandemic, Zscaler sought to maximize its growth. That turned out to be a smart move, and the company expects to keep moving forward with the same strategy.

Many fast-growing tech stocks have been winners during 2020, and today's moves in Zscaler and Zoom show that there's still interest in the sector's highfliers. Investors should expect Nasdaq stocks to keep making moves that don't necessarily follow the broader market.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications and Zscaler and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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