Why Zoom, Meta Pulled the Nasdaq in Different Directions Tuesday

The stock market hasn’t been able to put together a convincing rally for a long time, and Tuesday brought another disappointment. After strong gains on Monday, the Nasdaq Composite (^IXIC 0.00%) didn’t look like it would be able to sustain gains on Tuesday morning. As of 8 a.m. ET, futures on the Nasdaq were down almost 1.5%.

Good news from Zoom Video Communications (ZM 5.61%) seemed ready to put a positive spin on the prospects for high-growth stocks, especially given how badly the video collaboration software specialist had gotten hit over the past year. However, big-name companies with greater weightings in the Nasdaq kept hurting the index’s performance, with Meta Platforms (FB -7.62%) playing an especially large role.

Nine people shown on a laptop video conference call.

Image source: Getty Images.

Zoom sees light at the end of the tunnel

Shares of Zoom Video Communications picked up almost 4% in Tuesday morning’s premarket session. The company reported its first-quarter results, which convinced shareholders that there’s still some growth left in the video conferencing giant’s business.

Zoom’s numbers were mixed. Revenue rose 12% year over year to $1.07 billion. However, adjusted net income fell by more than 20% to $316 million, reducing adjusted earnings to $1.03 per share. Zoom pointed to 24% growth in enterprise customer counts to nearly 199,000, with a net dollar expansion rate on the enterprise side of 123% and more than 2,900 customers contributing $100,000 or more in annual sales.

Zoom also gave guidance that some investors found encouraging. For its full fiscal year, Zoom believes sales should be between $4.53 billion and $4.55 billion, producing adjusted earnings of $3.70 to $3.77 per share. That would represent just barely 10% growth on the top line, but most had feared far worse.

The launches of Zoom Contact Center, Zoom Whiteboard, and Zoom IQ for Sales indicate the direction the company wants to move going forward, as it aims to expand its reach across the work-from-home and hybrid-work spectrum. Whether those products will prove successful in the long run remains to be seen, but for now, investors are content to see them showing at least some promise for success.

Meta keeps stumbling

Meanwhile, shares of Meta Platforms were down nearly 7%. The social media giant reacted negatively to bad news from one of its industry peers, and investors seem to believe that Meta might suffer from some of the same poor conditions in the industry.

Late Monday, Snapchat parent Snap warned that it would likely miss its guidance for revenue and bottom-line performance. Pointing to a deteriorating macroeconomic environment, Snap felt it had to update its investors even though it had just given its previous outlook barely a month before.

Snap has some unique characteristics that don’t necessarily translate to its peers, but that doesn’t mean that Meta doesn’t face some of the same challenges. Despite having a much broader audience, Meta relies on a healthy economy to drive advertising revenue. Failure to monetize its content could lead to shortfalls in key business metrics, which is especially problematic as the company tries to pivot its business more toward the metaverse.

Meta’s stock is already down by half from its levels last September. That makes it a bargain in some investors’ eyes, but it also has to make it through a big transition in its business model in order to prove its naysayers wrong.

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