Zoom Eases Growth Concerns

Zoom Eases Growth Concerns

On Monday after the close, Zoom Video Communications ZM exceeded analysts' estimates for its fiscal third quarter, along with issuing better-than-expected guidance, somewhat easing concerns of the expected revenue slowdown in a post-pandemic world.

Quarter Results

For the quarter ended on October 31st, Zoom's revenue grew 35% from a year earlier as it amounted to $1.05 billion, exceeding the $1.02 billion that analysts expected, according to Refinitiv. This was only the company's second time to achieve revenue greater than $1 billion. Its first time was the second quarter when sales surged 54% YoY to $1.02 billion.

Net income did even better as it jumped 71% with resulting adjusted earnings being $1.11 per share, also exceeding $1.09 per share that analysts expected.

Fiscal Fourth-Quarter Guidance

Adjusted earnings are forecasted in the range between $1.06 and $1.07 per share on revenue between $1.051 billion and $1.053 billion which translated to a growth of 19%. Refinitiv's study of analysts estimated averaged at  $1.05 in adjusted earnings per share and $1.02 billion in revenue.

News

During the quarter, the video conferencing company called off its 14.7 billion acquisition of the cloud contact center software provider Five9 as its own cloud contact center software will launch in early 2022.

A Crowded Competitive Landscape

Meanwhile, the social media company, previously known as Facebook, Meta Platforms Inc FB has teamed up with Microsoft Inc MSFT to allow employees who use both services to access content without having to switch back and forth. Users will be able to stream their video meetings from Teams to Workplace groups, type comments, and use Facebook reactions. Microsoft Teams will also be supported on Meta's video-calling device Portal as the social media giant tries to expand its Workplace user base which in May had a total of 7 million users, rising from 5 million a year earlier. Back in April, Microsoft revealed Teams gathered more than 145 million daily active users. Alphabet Inc GOOG is also enhancing its Google Meet with more than 3 billion users using its Google Workspace.

Reckoning with Revenue Slowdown

Last year, Zoom emerged as part of our everyday culture after being merely a contender in a narrow category of business software as the pandemic redefined our reality. Millions of people adopted its software to conduct business and attend classes remotely as COVID-19 made those types of gatherings at the very least challenging, if not impossible.

Revenue growth was above 300% for the quarter that ended in January but this time around, Zoom has reported its slowest growth since 2018, which was before its IPO in 2019 as it reckons with decelerating growth.

Easing Growth Concerns

However, the company is expanding its usage within big organizations as over 2,500 customers are spending more than $100,000 a year, which is a 94% increase from the same period a year earlier. Demand for Zoom Rooms software is growing as organizations equip conference rooms for participants who are not on-site to be able to attend meetings. According to Kelly Steckelberg, Zoom's finance chief, the importance of a conference room strategy has increased compared to when before COVID-19 started its relentless march and disrupted businesses across the globe.

Zoom Isn't Giving Up

The stay-at-home company also known as one of the pandemic-era darlings has obviously reported significantly weaker growth results than the 326% surge investors rejoiced in last year when lockdowns made its offering into a ‘must-have tool'. But Zoom's performance shows it has a good shot at building on that success and improving its sales footprint in 2022 and beyond as new products might help deepen consumers' engagement and push average contract sizes higher.

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