What happened

Shares of video-teleconferencing company Zoom Video Communications (ZM -0.34%) tumbled 7.3% through 10:55 a.m. EST on Tuesday, despite reporting a sizable earnings beat in its fiscal Q3 earnings report last night. Analysts had forecast Zoom would earn only $0.84 per share on sales of $1.1 billion.

They were right about the sales figure -- Zoom hit $1.1 billion on the head. But they were very wrong about Zoom's profits. The company ended up earning $1.07 per share.  

So what

If Zoom was more profitable than Wall Street thought it would be last quarter, why is the stock zooming down instead of up today? I think there are two answers: sales and guidance. 

Zoom may have met analyst expectations for sales in Q3, but this wasn't a particularly high bar to clear. Sales only grew 5% year over year. What's more, Zoom's guidance for Q4 sales failed to impress.

Management sees no sequential sales growth at all in Q4 -- about $1.1 billion again. This would work out to less than 3% sales growth year over year and fall a bit below Wall Street's expectations. Full-year sales -- expected to be below $4.4 billion -- will also fall short.

For that matter, even in the one respect in which Zoom outperformed expectations -- earnings -- those earnings were only "pro forma," and down year over year, to boot. Zoom's non-GAAP profits of $1.07 per share declined 4% year over year. And when calculated according to GAAP principles, Zoom's profits were a mere $0.16 per share -- down 86% year over year.

Now what

So really, it wasn't all that great a quarter for Zoom Video after all, "earnings beat" notwithstanding. When you get right down to it, if you factor Zoom's latest numbers into its valuation, you have a supposed "growth stock" that isn't growing very fast (and may even be shrinking), valued at 20 times trailing free cash flow and 34 times trailing earnings.

Even down 61% over the past year, Zoom stock doesn't look like much of a bargain to me. Investors are probably right to be selling it today.