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ETFs to Buy as Zoom Shares Surge on Stellar Q4 Earnings

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On Mar 1 after the bell, video-chat service Zoom Video Communications (ZM - Free Report) crushed estimates for its fiscal fourth-quarter earnings. Shares sored more than 8.3% after hours. The company came out with quarterly earnings of $1.22 per share, beating the Zacks Consensus Estimate of 78 cents and increasing from 15 cents from a year ago.

Zoom Video, which belongs to the Zacks Internet - Software industry, posted revenues of $882.49 million for the quarter ended January 2021, surpassing the Zacks Consensus Estimate by 9.08%. Revenue grew 369% year over year. The company has topped consensus revenue estimates four times over the last four quarters. In the previous quarter revenue had surged about 367%.

Zoom saw its gross margin grow to 69.7% from 66.7% in the quarter. The company lost fewer customers than expected, per the management, as quoted on CNBC. Still, churn rates remained higher than the pre-pandemic level, and Zoom expects higher churn rates to continue thanks to the economic reopening and lesser dependence on the video call kind of services.  

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’s cash position has also improved and it is now on the lookout for the lucrative acquisition candidate, as indicated by the CNBC article.

Zoom provided strong guidance for fiscal first quarter of 2021. The company projected adjusted earnings per share in the range of 95 cents and 97 cents and revenues in the range of $900 million to $905 billion, implying 175% annualized revenue growth at the middle of the range. Consensus among analysts polled by Refinitiv was 72 cents in adjusted earnings per share and $829.2 million in revenues.

Market Impact

Zoom’s Q4 success was already anticipated as the stock gained 9.7% in the key trading session on Mar 1 before the release of the earnings. No wonder, such a blowout performance boosted Zoom shares by about 8.3% on Mar 1, after hours.

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 9.01% in the fund. (read:Rivian IPO Prospect Opens Opportunities for These ETFs).

Pacer BioThreat Strategy ETF (VIRS - Free Report)

The underlying LifeSci BioThreat Strategy Index comprises of U.S. listed stocks of companies whose products or services help protect against, endure, or recover from biological threats to human health. The stock has a 4.24% weight in the fund. The fund charges 70 bps in fees.

iShares Expanded Tech-Software Sector ETF (IGV - Free Report)

The underlying S&P North American Expanded Technology Software Index comprises of North American equities in the software industry and select North American equities from interactive home entertainment and interactive media and services industries. The fund, which invests 3.46% to ZM shares, charges 46 bps in fees.

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