Zoom Video Operating Expenses Surge, Guides Lower

Leading video conferencing software company Zoom Video Communications reported worse than expected fiscal third-quarter revenue Tuesday. $ZM also lowered guidance which sent the shares sharply lower by more than 10% in after-hours trading. For perspective prior to Monday’s earning’s report, Zoom shares had lost about 90% of their value since peaking in October 2020. The stock has fallen since the stay-at-home market reverted, the aborted Five9 transaction and the collapse of the manic tech bubble.

Zoom Conference

 Zoom Video Communications Inc NASDAQ: ZM Reported Earnings After Close Tuesday

Fiscal Third-Quarter Earnings

  • Earnings: Net income of $48.4 million, or 16 cents a share. After adjusting for stock compensation and other effects, earnings of $1.07 a share, down from $1.11 a share last year but easily topping analysts’ expectations. Analysts surveyed by FactSet had on average expected adjusted net income of 83 cents a share.
  • Revenue: $1.1 billion, up from $1.05 billion a year ago. Analysts surveyed by FactSet had on average expected revenue of $1.094 billion. Rose just 4.9% yr/yr to $1.1 bln in Q3, marking ZM’s lightest quarter since going public over three years ago.
  • The enterprise customer base rose 14% yr/yr to around 209K in Q3, comprising roughly 56% of total revs. ZM anticipates that its enterprise customers will encompass an increasingly higher percentage of total revenue over time. The company also guided to enterprise growth in the mid-20s for Q4.
  • Zoom reported operating expenses surged 56% in the third quarter as it spent more on product development and marketing. Its adjusted operating margin shrank to 34.6% from 39.1% a year earlier.

ZM Stock Market Reaction

  • 77.15 ▼ -3.11 (-3.87%) Close November 22 Low $71.90
  • 77.15 ▼ -129.49 (-62.66%) past year
  • 77.15 ▲ +15.15 (+24.44%) past 4 years (lifetime)

ZM also has been strengthening its new capabilities, such as Zoom Phone, Zoom Rooms, and Zoom Contact Center. These capabilities moderately extended their success in Q3, with Zoom Phone adding 9 customers that purchased over 10,000 seats, bringing the total to 64. ZM did not dive much into details surrounding Rooms and Contact Center, only noting that Rooms contributed growth in the quarter and that both will likely be future revenue drivers.

Zoom had five straight quarters of triple-digit revenue growth during the pandemic, Zoom is now reckoning with dramatically slower expansion and a market correction that’s hammered stay-at-home stocks the most.

Zoom Video Communications Inc NASDAQ: ZM

Outlook

For the fourth quarter, Zoom expect 75 cents to 78 cents a share on revenue of roughly $1.1 billion, while analysts on average are projecting 81 cents a share on sales of $1.1 billion,

Zoom executives said they now expect full-year adjusted earnings of $3.91 to $3.94 a share on revenue of $4.37 billion to $4.38 billion, after previously targeting adjusted earnings of $3.66 to $3.69 a share on revenue of $4.39 to $4.4 billion.

“Enterprise is growing and the online business is contracting: The question is when does online stabilize?” Zoom Chief Financial Officer Kelly Steckelberg told MarketWatch. She said Zoom based its tepid fourth-quarter EPS guidance Monday on “challenging economic times,” “[foreign-exchange] pressure,” longer enterprise sales cycles and a decline in Zoom’s higher-margin online business. She expects the online business to stabilize in the second quarter, with at least one analyst on a conference call late Monday anticipating low- to mid-single-digit growth for Zoom in its next fiscal year.

About Zoom

Zoom has a “frictionless communications platform is the only one that started with video as its foundation, and we have set the standard for innovation ever since. That is why we are an intuitive, scalable, and secure choice for individuals, small businesses, and large enterprises alike.”

Founded in 2011, Zoom is publicly traded (NASDAQ: ZM) and headquartered in San Jose, California. Visit zoom.com and follow @zoom.

Source: Zoom

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