What happened
Zoom (ZM -1.49%) shareholders saw a big spike in early trading on Thursday as the stock gained over 6% by 10 a.m., EST. Shares then fell back to a 2% increase by 1:45 p.m. compared to a 0.1% drop for the S&P 500. Zoom remains in deeply negative territory for the year, showing a 58% decline so far.
Thursday's early rally came as investors continue to disagree about the video communications specialist's growth potential.
So what
Zoom's early price jump appeared to be a continuation from yesterday's rally. The stock rose along with the wider market on Wednesday. Many tech stocks have been pushed far lower during the recent market downturn on fears of a recession developing in 2023. Wall Street turned more optimistic in recent days, and Zoom's battered shares benefited disproportionately from this improving short-term outlook.
It helps that the company in late November announced solid sales growth and continued profitability. Zoom isn't as exposed to a potential downturn as other tech stocks, which today are posting falling sales and net losses.
Now what
Zoom's last few quarterly reports have revealed some weaknesses in the business. Its consumer-focused division is shrinking, after all, so all of its growth is coming from enterprise sales.
The company is hoping to fix this issue by adding more services through acquisitions and internal development, but those initiatives will take time. Zoom has reported several consecutive quarters of shrinking profitability, too.
On the bright side, Zoom has a large customer base and is having no trouble attracting more enterprise clients. Continued wins here should help it steadily grow sales and earnings as it expands its software-as-a-service (SaaS) portfolio.
That potential helps explain why the stock jumps on positive days for the wider market, even though investors remain concerned about Zoom's exposure to a slowdown in IT spending.
