Zoom shares drop on light forecast as company faces ‘heightened deal scrutiny’

Earnings

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Eric Yuan, CEO, Zoom Video Communications
Source: CNBC

Zoom shares slumped more than 7% in extended trading on Monday after the video-chat company issued weaker-than-expected revenue guidance for its full fiscal year.

Here’s how the company did:

  • Earnings: $1.07 per share, adjusted, vs. 84 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $1.10 billion, vs. $1.10 billion as expected by analysts, according to Refinitiv.

Two years ago at this time Zoom’s challenge was in keeping up with demand, as pandemic-driven usage drove revenue up more than 300% in 2020.

Since then, Zoom’s struggle has been adapting to a non-pandemic reality. The stock has lost more than 85% of its value since peaking in October 2020, including a drop of over 50% this year.

Revenue in the latest quarter, which ended Oct. 31, increased by 5% from a year earlier, according to a statement. In the previous quarter revenue grew 8%. Net income plummeted to $48.4 million from $340.3 million in the year-ago quarter.

After the stock soared in 2020, Zoom faced the twin problems of a reopening economy and increased competition, most notably from Microsoft, which was pouring money into its Teams video and collaboration service. More business and personal meetings are happening in real life, and those that are occurring online aren’t necessarily over Zoom.

The company is seeing “heightened deal scrutiny for new business,” Zoom CEO Eric Yuan said during Zoom’s earnings call. Rivals aren’t winning the deals Zoom discusses with prospective clients, but they are taking longer to close, said Kelly Steckelberg, the company’s finance chief.

Zoom is still adding big corporate clients. At the end of the quarter, Zoom had 209,300 enterprise customers, up from 204,100 one quarter earlier. The company said its online business — including customers that subscribe directly through its website — declined by 9%.

Zoom lowered revenue guidance, mainly because of the strengthening U.S. dollar.

The company expects sales this fiscal year of $4.37 billion to $4.38 billion, a slight reduction from its forecast in August and below the $4.4 billion average analyst estimate. Adjusted earnings will be $3.91 a share to $3.94 a share, higher than estimates and above the company’s prior forecast.

Zoom’s forecast implies 5% revenue growth in the fiscal fourth quarter.

Management didn’t provide guidance for the 2024 fiscal year, but Steckelberg said that as she and her other executives work on the plan for that period, “we are being very, very thoughtful about prioritization of investments.”

The company will hire fewer people as it approaches the new fiscal year, she said.

WATCH: Zoom CFO says customers are willing to pay up for the company’s products

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