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ETFs to Buy as Zoom Shares Surge 40% on Stellar Q2 Earnings

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On Aug 31 after the bell, video-chat service Zoom Video Communications (ZM - Free Report) crushed estimates for its Q2 earnings. The company came out with quarterly earnings of 92 cents per share, beating the Zacks Consensus Estimate of 45 cents and increasing from 8 cents from a year ago.

Zoom’s revenues of $663.5 million also beat analysts’ expectation of $500.5 million. Revenues grew 355% on an annualized basis in the fiscal second quarter, which ended on Jul 31, according to a statement, as quoted on CNBC. In the prior quarter, Zoom’s revenues jumped 169%. New customers’ subscriptions contributed to 81% of revenue growth, and there was less customer churn than expected.

Zoom has been a true coronavirus winner. Remote working and the need for video conferencing have become the pandemic protocol globally and contributed to the Zoom’s achievement materially. The company hired information security and diversity leaders, and acquired secure messaging start-up Keybase, as reported on CNBC.

Zoom upped its guidance for fiscal 2021. The company projected adjusted earnings per share in the range of $2.40 to $2.47 (up from the previous guided range of $1.21 to $1.29) and revenues in the range of $2.37 billion to $2.39 billion (up from the earlier guidance of $1.78 billion to $1.80 billion), implying 282% annualized revenue growth at the middle of the range. Consensus among analysts polled by Refinitiv was $1.30 in adjusted earnings per share and $1.81 billion in revenues.

Market Impact

Zoom’s Q2 success was already anticipated as the stock gained 8.6% in the key trading session on Aug 31 before the release of the earnings. “Morgan Stanley analysts said ahead of the report that buy-side analysts expected Zoom to beat its own forecast by about 30%,” as quoted on MarketWatch. No wonder, such a blowout performance boosted Zoom shares by about 40.8% on Sep 1. 

ETFs to Watch

Zoom Video Communications currently has Zacks Rank #2 (Buy). Given this, ETFs having a larger allocation to Zoom Video communications are in focus post stellar earnings. We have highlighted them below.

Renaissance IPO ETF (IPO - Free Report)

The underlying Renaissance IPO Index is a portfolio of newly U.S.-listed initial public offerings of companies whose unseasoned equities are under-represented in core U.S. equity indices. IPOs that meet liquidity and operational screens are included in the index at the end of the fifth day of trading, or upon quarterly reviews, weighted by tradable float, capped at 10% and removed after two years. Zoom takes about 10% in the fund. Zoom’s gains helped IPO surge by about 6.6% on Sep 1 (read: Invest in Hottest IPOs With These ETFs).

Global X Education ETF (EDUT - Free Report)

The underlying Indxx Global Education Thematic Index tracks the performance of companies listed in developed and emerging markets that provide products and services which facilitate education, including but not limited to companies involved in online learning and educational content/publishing, as well as early childhood education, higher education and professional education.  Zoom Video Communications takes about 8.4% of the fund. The fund added 6.5% on Sep 1.

Global X Cloud Computing ETF (CLOU - Free Report)

The underlying Indxx Global Cloud Computing Index provides exposure to exchange-listed companies in developed and emerging markets that are positioned to benefit from the increased adoption of cloud computing technology. Zoom takes the first spot with about 6.75% exposure. The fund jumped 6.1% on Sep 1.

Direxion Connected Consumer ETF

The underlying Solactive Connected Consumer Index comprises U.S. listed securities and ADRs of companies that provide products and services in home entertainment, online education, remote health and well-being, and virtual and digital social interaction. Zoom holds about 3.84% of the fund. CCON advanced about 4.5% on Sep 1.

Direxion Work From Home ETF (WFH - Free Report)

The underlying Solactive Remote Work Index comprises U.S. listed securities and ADRs of companies that provide products and services in at least one of the following business segments that facilitate the ability of people to work from home: remote communications, cyber security, online project and document management, and cloud computing technologies. Zoom Video takes about 4.05% of the fund. The fund rose about 4% on Sep 1.

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