Zoom (ZM) Q2 Earnings Beat, Revenue Growth Hits New Low

Zoom’s ZM second-quarter fiscal 2023 adjusted earnings of $1.05 per share beat the Zacks Consensus Estimate by 14.13% but decreased 22.8% year over year.

Revenues of $1.09 billion missed the consensus mark by 1.5%. Shares of the company fell 7% in extended trade after it reported its slowest quarterly revenue growth on record at 7.6% year over year, approximately $16 million below the lower end of the quarterly guidance.

A stronger U.S. dollar, which had an impact of approximately $8 million, weaker new online sales, and to a lesser extent backend linearity in the quarter were the biggest factors contributing to the revenue miss.

Zoom Video Communications, Inc. Price, Consensus and EPS Surprise

Zoom Video Communications, Inc. Price, Consensus and EPS Surprise

  

Zoom Video Communications, Inc. price-consensus-eps-surprise-chart | Zoom Video Communications, Inc. Quote

Quarter Details

Revenues from Enterprise customers grew 27% year over year and represented 54% of total revenues, up from 46% in second-quarter fiscal 2022. The number of Enterprise customers grew 18% year over year to over 204,100. The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 120%.

In the fiscal second quarter, Zoom customers contributing more than $100,000 in revenues in the trailing 12 months grew 37% to 3,116. These customers accounted for 26% of revenues, up from 20% in the year-ago quarter.

Revenues grew 12% in America, while international market revenues from APAC grew 10% year over year.

Operating Details

Non-GAAP gross margin expanded 270 basis points (bps) to 78.9% in the fiscal second quarter of 2023.

Zoom now faces an uphill task of onboarding high-paying clients to sustain its growth and has seen expenses rise as it shells out more dollars to attract customers.

Research and development expenses increased 80.8% year over year to $97.8 million. Sales and marketing expenses increased 37.3% to $289.7 million, while general and administrative expenses increased 1.7% to $90.3 million.

Non-GAAP operating income decreased 7.3% to $393.3 million year over year. Non-GAAP operating margin contracted 580 bps to 35.8%.

Balance Sheet and Cash Flow

Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of Jul 31, 2022 was $5.5 billion. As of Apr 30, 2022, cash, cash equivalents and marketable securities were $5.7 billion.

Adjusted free cash flow was $222.1 million. As of Apr 30, 2022, adjusted free cash flow was $501.1 million.

Guidance

Zoom expects third-quarter fiscal 2023 revenues in the range of $1.095 billion to $1.1 billion.

Non-GAAP earnings per share are expected in the range of 82 cents to 83 cents.

Zoom has cut its annual profit and revenue forecasts as demand for the video-conferencing platform cools off from pandemic highs amid stiff competition from Microsoft Teams and Cisco WebEx.

For fiscal 2023, Zoom expects revenues in the range of $4.385 billion to $4.395 billion compared with its earlier outlook of $4.53 billion to $4.55 billion. At the midpoint, this represents a decrease of over $150 million compared with the previous full-year guidance. Of this decrease, nearly $35 million is due to the stronger dollar and $115 million is attributable to the broader macroeconomic environment.

Non-GAAP earnings per share are expected in the range of $3.66 to $3.39 compared with $3.70 to $3.77 forecast earlier.

Zacks Rank & Key Picks

Currently, Zoom Video carries a Zacks Rank #4 (Sell).

Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like Arista Networks ANET, Keysight Technologies KEYS and ASE Technology ASX. While Arista Networks sports a Zacks Rank #1 (Strong Buy), Keysight Technologies and ASE Technology carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks has lost 9.6% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 18.9%.

Keysight Technologies has lost 17.4% in the year-to-date period. KEYS’ long-term earnings growth rate is currently projected at 9.1%.

ASE Technology has lost 19.2% in the year-to-date period. The long-term earnings growth rate for ASX is currently projected at 23.1%.

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