Zoom Net Income Plummets, Forecast Trails Estimates

_{Source: Predictions based on analysts' consensus from Visible Alpha}

Zoom Financial Results: Analysis

 Zoom Video Communications Inc. (ZM) posted third-quarter adjusted earnings above estimates on Nov. 21 after the market close, but issued a fourth-quarter forecast below market expectations. Shares of the online videoconferencing provider fell 5% in after-hours trading.

Zoom posted adjusted earnings of $1.07 per share (EPS) for its Q3 FY 2023, which ended Oct. 31. Analysts tracked by Visible Alpha estimated EPS 83 cents on average. Revenue rose nearly 5% year-over-year, slightly above analysts' consensus.

Net income fell 86% year-over-year as operating expenses increased 56%. Another factor was the near-tripling in the cost of stock-based compensation. Zoom's share price was down 68% for the last 12 months ahead of the earnings release.

The company increased the number of customers providing at least $100,000 of trailing 12-month revenue by 31% year-over-year, reflecting its effort to recruit more larger enterprise customers. The gain fell short of analyst estimates, however.

"We drove revenue above guidance with continued momentum in Enterprise," said Zoom CEO Eric Yuan in the results announcement. "In addition, our non-GAAP operating income came in meaningfully higher than our outlook, setting us up to finish the year with full-year revenue growth, strong GAAP and non-GAAP profitability, and free cash flow that we expect to be at the high end of our range of $1 billion to $1.15 billion."

Zoom's Outlook

Zoom projected fourth-quarter revenue of $1.1 billion, which would amount to a year-over-year growth of less than 3%. The revenue outlook fell modestly short of analysts' average estimate, as did Zoom's forecast for adjusted fourth-quarter earnings of 75 to 78 cents per share.

Yuan cited "the backdrop of a challenging macroeconomic environment" and "heightened deal scrutiny for new business" in his conference call remarks.

Zoom's stock was a big beneficiary of the increase in videoconference amid the COVID-19 pandemic. Growth has slowed lately, however, amid competition from Alphabet Inc. (GOOG, GOOGL), which offers Google Meet, and Microsoft Corp. (MSFT), provider of a similar service through Microsoft Teams.