Zoom Video (ZM) Delivers First $1 Billion Quarter, Shares Sink on Conservative Guidance and Small Biz Churn, Analysts Lower PTs
Shares of Zoom Video Communications (NASDAQ: ZM) are down 11% in pre-open Tuesday after Q2 results showed signs of a slowdown.
Zoom reported Q2 EPS of $1.36 to easily top the analyst estimate of $1.02. Sales for the quarter came in at $1.02 billion versus the consensus estimate of $990.9 million.
“In Q2, we achieved our first billion dollar revenue quarter while delivering strong profitability and cash flow,” said Zoom founder and CEO, Eric S. Yuan.
“Q2 also marked several milestones on our expansion beyond the UC platform. We launched Zoom Apps, bringing over 50 apps directly into the Zoom experience, and Zoom Events, an all-in-one digital events service. Today we are a global brand counting over half a million customers with more than 10 employees, which we believe positions us extremely well to support organizations and individuals as they look to reimagine work, communications, and collaboration.”
On the outlook front, Zoom expects Q3 EPS between $1.07 and $1.08, which is lower than the consensus of $1.09. Q3 revenue is expected between $1.015 and $1.02 billion, higher than the estimate of $1.01 billion.
On a full-year basis, full-year revenue is expected between $4.005 billion and $4.015 billion to miss on the $4.01 billion outlook. ZM is calling for fiscal year EPS to come in between $4.75 and $4.79, higher than the Street estimate of $4.67.
In a call with investors, the company said that Zoom Phone has continued to gain impressive traction as it now has 2 million paid seats with 1 million added in the past eight months.
UBS analyst Karl Keirstead lowered the price target to $315.00 per share from $345.00 per share on a worse-than-expected deceleration.
“Zoom posted a disappointing quarter that missed buy-side bogeys on almost every growth metric as “post-COVID” churn from paying individuals and small (<10 employee) businesses ramped in the second half of the quarter, leading to guidance for sequentially flat revs of $1.02b in each of 3Q/Oct and 4Q/Jan and a 4Q/Jan exit revs growth rate of just 15%. Unfortunately, the up-market segment didn’t save the day, as it represented 20% of the mix (we were modeling 21%), with Zoom flagging slower (more normalized) enterprise sales cycles,” Keirstead said in a client note.
“Zoom sized its now-challenged “online” (in contrast to direct and channel) segment from mostly paying individuals and <10 employee businesses at 40%+ of the revs mix, equivalent to the mix from monthly billings. While the unexpected 2Q/Jul churn came mostly from paying individuals, the risk is that <10 employee businesses are next and that Zoom’s guide may not be as conservative as most thought. In fact Zoom guided to a sequential revs decline in the <10 employee segment (36% of total revs) in 3Q/Oct,” the analyst added.
Despite a growth slowdown, RBC analyst Rishi Jaluria reiterated an Outperform rating and $450.00 per share price target. He saw positives in Zoom Phone and large customers momentum but also conservative guidance.
“ZM reported a solid quarter, but provided guidance calling for F3Q and F4Q revenue to be flat sequentially, sending shares down 12% AMC. Our take is guidance looks conservative, we were encouraged by commentary around Zoom Phone and large customers, and we continue to like the long-term potential of Zoom to become a broader platform,” Jaluria wrote in a note sent to clients.
Shares of Zoom are down 3.5% YTD.