Why We Felt Comfortable Shorting Zoom (ZM) Ahead of Earnings
Yesterday, just hours before Zoom Video Communications (ZM) released its Q3 earnings, we opened a short position against the stock.
Our short wasn’t a bet on an earnings miss. It was a bet against the company’s declining relevance.
1. No Moat Anymore
In 2020, Zoom was a necessity because it worked when nothing else did.
Today, for the vast majority of companies, Microsoft Teams is “free” because it’s included in the Microsoft 365 licenses they are already paying for. Justifying a standalone Zoom license when Teams is “good enough” doesn’t make sense.
2. Growth Has Hit a Ceiling
Zoom is no longer a growth stock. Leading up to this earnings print, revenue growth had decelerated to the low single digits (~3–4%). That is barely keeping pace with inflation.
3. The Asymmetry Favored the Short
If Zoom’s earnings report surprised to the upside, the stock might pop a few percentage points at most, but if they delivered anything less than a perfect report, the downside would be far greater.
4. The Play
Heading into earnings, the options market was pricing in a 10% move to the upside that we felt was ridiculous especially in the current choppy market condition. So we didn’t simply short the shares. We shorted via options to give us an additional edge and multiple ways to win.