Why Is Zoom Video (ZM) Up 20.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Zoom Video Communications (ZM). Shares have added about 20.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zoom Video due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Zoom’s Q1 Earnings Top Estimates, Revenues Jump Y/Y

Zoom’s first-quarter fiscal 2023 adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate by 17.05% but decreased 22% year over year.

Revenues of $1.07 billion surpassed the consensus mark by 0.12% and increased 12.3% year over year.

In the reported quarter, Zoom Video revenues benefited from growth in enterprise business, which saw a steady increase in customers as well as improved renewal rates year over year.

Revenues from Enterprise customers grew 31% year over year and represented 52% of total revenues, up from 45% in first-quarter fiscal 2022. The number of Enterprise customers grew 24% year over year to over 198,900.

Strong demand for Zoom Phone impacted the growth of revenues positively. In the fiscal first quarter, Zoom Phone reached 3 million paid seats.

Quarter in Detail

Expanding customer base was a major contributor to earnings in the reported quarter. In the fiscal first quarter, Zoom customers contributing more than $100,000 in revenues in the trailing 12 months, grew 46%. These customers accounted for 24% of revenues, up from 19% in the year-ago quarter.

Renewals in Online business improved sequentially but growth was impacted mainly by international headwinds, including the strengthening of the dollar and the Russia-Ukraine war.

This business is an attractive model from the profitability and cash flow perspective. Thus, slower growth in this business model slightly hampered bottom-line growth.

Revenues grew 14.5% in America while international market revenues from APAC grew 20.2% year over year.

Operating Details

Non-GAAP gross margin contracted from 88.3% in the year-ago quarter to 65.8% in the fiscal first quarter of 2023.

Research and development expenses declined 51.2% year over year to $41.4 million. Sales and marketing expenses declined 28.5% to $190.9 million, while general and administrative expenses decreased 20.8% to $73.4 million.

Non-GAAP operating income increased 0.3% to $400.9 million year over year. Non-GAAP operating margin contracted 450 basis points (bps) to 37.3%.

Balance Sheet and Cash Flow

Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of Apr 30, 2022 was $5.7 billion. As of Jan 31, 2022, cash, cash equivalents and marketable securities were $5.4 billion.

Adjusted free cash flow was $501.1 million. As of Jan 31, 2022, adjusted free cash flow was $274 million.

Guidance

Zoom expects second-quarter fiscal 2023 revenues in the range of $1.115 billion to $1.120 billion.

Non-GAAP earnings per share are expected in the range of 90 cents to 92 cents.

For fiscal 2023, Zoom expects revenues in the range of $4.53 billion to $4.55 billion.

Non-GAAP earnings per share are expected in the range of $3.70 to $3.77.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 34.85% due to these changes.

VGM Scores

At this time, Zoom Video has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zoom Video has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Zoom Video belongs to the Zacks Internet - Software industry. Another stock from the same industry, Sea Limited Sponsored ADR (SE), has gained 2.1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Sea Limited Sponsored ADR reported revenues of $2.59 billion in the last reported quarter, representing a year-over-year change of +23.6%. EPS of -$0.80 for the same period compares with -$0.62 a year ago.

For the current quarter, Sea Limited Sponsored ADR is expected to post a loss of $0.91 per share, indicating a change of -49.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Sea Limited Sponsored ADR. Also, the stock has a VGM Score of F.

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