Zoom beats earnings expectations, hikes its full-year forecast and its stock rises

CLOUD

Zoom Video Communications Inc. posted second-quarter earnings results that exceeded analyst’s expectations, sending its stock about 4% higher today.

The company’s guidance for the current quarter was mixed, but investors were happy to forgive that, as it raised its full-year forecast.

The company reported net income of $182 million for the quarter, rising from a profit of just $45.7 million a year earlier. Earnings before certain costs such as stock compensation came to $1.34 per share, well ahead of the analysts target of $1.05. Meanwhile, revenue rose 3%, to $1.14 billion, just ahead of the $1.12 billion forecast.

The results were encouraging, but it’s clear that Zoom is growing at a much slower rate than it was a couple of years ago at the height of the COVID-19 pandemic. Back then, with remote work at its zenith, Zoom grew spectacularly as its revenue multiplied almost fivefold.

These days Zoom’s growth has slowed to a crawl. Executives said the company ended the quarter with around 218,100 enterprise customers, up just 1% from the 215,900 customers it had at the end of the first quarter. Enterprise clients are defined as those business customers that work directly with Zoom’s sales teams, resellers or partners.

Looking to the next quarter, Zoom’s guidance was somewhat mixed, with the company forecasting earnings of between $1.07 and $1.09 on revenue of $1.115 billion to $1.120 billion. Although Wall Street is only looking for earnings of $1.03 per share, its revenue target is higher at $1.13 billion.

Still, Zoom appears to think its longer-term prospects are much better, for executives raised their full-year forecast. The company now predicts earnings of between $4.63 and $4.67 per share on revenue of $4.485 billion to $4.495 billion in fiscal 2024.

That’s much higher than its original forecast of just $4.25 to $4.31 in earnings and $4.465 billion to $4.485 billion in revenue. It’s also higher than Wall Street’s full-year targets of $4.30 in earnings and $4.49 billion in sales.

Zoom Chief Financial Officer Kelly Steckelberg said on a call with analysts that the increased revenue guidance “reflects a consistent view on enterprise.” She added that sales cycles remain much longer than usual. According to her, customers are “making sure that they take advantage of doing their full due diligence.”

While Steckelberg focused on the numbers, Zoom founder and Chief Executive Eric Yuan spoke about the company’s latest developments in artificial intelligence. Yuan said that unlike some of Zoom’s rivals, the company won’t be charging crazy prices for new AI features.

“I do not think that’s fair to customers,” he told analysts. Rather, he said, he intends to add AI capabilities onto Zoom’s existing software products.

One of the company’s first AI offerings is ZoomIQ, which makes it possible for chat hosts to create AI-generated summaries of their meetings after they conclude. He told analysts there’s more to come, adding that the company has an aggressive roadmap in terms of AI features that will help enterprises to work smarter and better serve their customers.

“All of those generative AI features can make the platform not only more sticky, but also more valuable,” he added.

Zoom faced some backlash recently over fears aired on social media that it was using customer data to train its AI models. The company was forced to clarify publicly that it doesn’t train any of its AI products on users’ video, audio or chat messages, unless it receives permission to do so. Yuan reiterated that message on the call, stating his belief that “technology should advance trust.”

Besides AI, Zoom also has high hopes for its nascent contact center software business, which remains small but is growing rapidly. According to Steckelberg, the business now counts more than 500 customers.

Zoom rapidly developed and launched its contact center software last year after failing in its multibillion-dollar bid to acquire rival Five9 Inc. The finance chief said Zoom is growing fast in this area because its prices are “highly disruptive.”

Photo: CNBC/YouTube