Stocks jumped last week, as investors celebrated the resumption of more normal activity across big parts of the economy. Both the Dow Jones Industrial Average (^DJI 0.26%) and the S&P 500 (^GSPC 0.61%) gained over 3%, which put the S&P at just a 6% decline so far in 2020, while the Dow is lower by 11%.
A few big-name stocks will announce earnings results over the next few trading days, including Ambarella (AMBA 0.44%), Slack Technologies (WORK +0.00%), and Zoom Video Communications (ZM 1.11%). Below, we'll take a look at the important trends that might send their stocks moving this week.
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Ambarella's market share
Ambarella's Tuesday earnings report should answer some big questions investors have about its business. Sure, the video tech specialist competes in some attractive industry niches like computer vision and AI. But its operating results haven't yet demonstrated a defensible market position in those arenas. Sales declined in two of the last four quarters, and Ambarella's gross profit margin fell to 58% of sales in fiscal 2020 compared to 61% in the prior year.
CEO Fermi Wang and his team predicted that fiscal 2021 will bring more of the same, with sales rising but profitability staying under pressure while Ambarella widens its portfolio of computer vision chips. That forecast occurred before the pandemic struck key markets like Europe and North America, though, so investors may see significant changes to management's outlook on Tuesday afternoon.
Zoom's user gains
Expectations could hardly be higher for Zoom's earnings report on Tuesday. The digital communication specialist was seeing interest soar in recent months -- and that was before COVID-19 likely sent key engagement figures to record levels.
Much of that optimism is already reflected in a stock price that has more than doubled since the start of the year. That rally means the pressure is on for CEO Eric Yuan and his team to show continued impressive gains in the user base, but also in operating cash flow and earnings. Big gains in those metrics would give Zoom its best chance at investing heavily in the business and -- ideally -- turning many of its newest visitors into loyal customers over the coming quarters.
Slack's member base
Investors are expecting to hear good news from Slack in its first-quarter earnings report on Thursday. The enterprise communication software specialist was on a roll before the pandemic struck, and its products likely became more important as businesses moved to an entirely off-site work structure.
That optimism has investors who follow the stock predicting 40% sales growth this quarter, with revenue climbing toward $190 million. Slack is still expected to post a net loss, though, as it prioritizes market share in its battle against well-capitalized rivals such as Microsoft.
If the tech company can beat the odds and build a substantial base of users, then its software-as-a-service model should produce high returns for investors over time. The bearish case for the stock, on the other hand, sees rivals slashing prices to win market share and keeping a lid on Slack's earnings potential. Its performance during the COVID-19 pandemic might offer clues as to which scenario investors are most likely to see play out over the next five years.
