Zoom Q3 FY2022 Earnings Report Preview: What to Look For

Focus on ZM customers contributing over $100K in 12-month trailing revenue

Key Takeaways

  • Analysts estimate adjusted EPS of $1.09 vs. $0.99 in Q3 FY 2021.
  • The number of customers contributing over $100,000 in 12-month trailing revenue is expected to rise YOY, but at a slower pace then recent quarters.
  • Revenue is forecast to increase, but at a decelerating rate after last year's rapid expansion amid the COVID-19 pandemic.

Zoom Video Communications Inc. (ZM) saw its profits and revenue soar last year during the COVID-19 pandemic, which forced millions of people worldwide to work or study from home. The rise of the so-called "work-from-home" economy created soaring demand for the company's easy-to-use video conferencing service. But the outlook for Zoom has changed dramatically amid the widespread availability of vaccines. People are starting to return to their offices, which may dampen the company's already-slowing growth rate.

Investors will be watching how much these trends are affecting Zoom's growth rate when it reports earnings on Nov. 22, 2021 for Q3 FY 2022. The company's 2021 fiscal year (FY) ended Jan. 31, 2021. Thus, the company is currently in its 2022 fiscal year. Analysts expect both adjusted EPS and revenue to rise but at a significantly slower pace compared to the past year.

Investors will also be watching the number of Zoom customers contributing over $100,000 in 12-month trailing (TTM) revenue. This key metric provides an indication of the number of larger enterprises utilizing Zoom's platform. These customers tend to represent stable, longer-term revenue streams than smaller customers. Analysts expect the number of customers contributing over $100,000 in revenue to expand at a robust pace YOY, but at a slower rate compared to recent quarters.

Shares of Zoom have underperformed the broader market over the past year. The stock skyrocketed through most of 2020 but then began to fall later in the year and has continued to slide lower over the past 12 months, despite a few false rebound attempts. Zoom's decline accelerated beginning in early August, dramatically widening the stock's performance gap with the S&P 500 over the past four months. As a result, Zoom's shares have provided a total return of -39.3% over the past year, well below the S&P 500's total return of 31.2%.

One Year Total Return for S&P 500 and Zoom
Source: TradingView.

Zoom Earnings History

Zoom reported Q2 FY 2022 earnings and revenue that beat analysts' consensus estimates. Adjusted EPS rose 46.7% compared to the year-ago quarter, its slowest pace since the second quarter of FY 2019. Revenue grew 54.0% year over year (YOY), its slowest quarterly pace since at least Q1 FY 2019. It was the first quarter during which Zoom recorded at least $1 billion in revenue. The company also added to its product offerings by launching an all-in-one digital events service called Zoom Events during the quarter.

In Q1 FY 2022, Zoom's earnings and revenue came in above analysts' expectations. Adjusted EPS rose 566.4% compared to the year-ago quarter. But even that rapid pace of growth was a significant deceleration from the growth rates posted in the final three quarters of FY 2021. Revenue expanded 191.4% YOY, which was also much slower than the previous three quarters. Zoom said that its strong quarterly results were driven by the ongoing work- and study-from-home trends, which were accelerated by the pandemic.

Analysts expect Zoom's earnings and revenue to continue to decelerate in Q3 FY 2022. Adjusted EPS is expected to increase 10.2% YOY, which would be the slowest pace since it declined in Q2 FY 2019. Revenue is expected to grow 31.3% YOY, the slowest pace in at least 15 quarters. For full-year FY 2022, adjusted EPS is expected to rise 44.0% as revenue expands 51.6%. It would be the slowest pace of growth for either metric in at least the past four years.

Zoom Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Adjusted Earnings Per Share ($) 1.09 0.99 0.09
Revenue ($M) 1,020.6 777.2 166.6
Customers Contributing Over $100K in 12-Month Trailing Revenue 2,380  1,289 546

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be watching the number of customers contributing over $100,000 in revenue over the previous 12 months. The size of this customer group provides a measure of two key capabilities: Zoom's ability to scale its offerings to its users' needs, and the company's ability to attract larger organizations to its platform. Large customers are likely to be a more stable source of revenue compared to individuals or smaller organizations who may switch more frequently to other video conferencing services. Securing contracts with large enterprises will be especially important as the global economy emerges from the pandemic and as many people begin returning to their company offices to work and students return to classrooms.

Zoom customers contributing more than $100,000 in TTM revenue have grown significantly in just a few short years. In the first quarter of FY 2019, the company had just 184 such customers. That total has expanded to 2,278 as of the end of Q2 FY 2022, a more than twelvefold increase. Growth accelerated all through FY 2021 and into the first quarter of FY 2022 when the number of customers contributing $100,000 in TTM revenue rose 160.0% YOY. That marked the fastest pace of growth in at least the past 13 quarters. Growth slowed in Q2 FY 2022, rising 130.6% YOY. Analysts expect further deceleration in Q3 FY 2022, forecasting that Zoom's large customer base will increase 84.6% YOY. For the final quarter of the year, analysts expect an increase of 57.4% YOY, which would be the slowest quarterly pace in at least four years.

Article Sources
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  1. Zoom Video Communications Inc. "Zoom to Release Financial Results for the Third Quarter of Fiscal Year 2022." Accessed Nov. 22, 2021.

  2. Zoom Video Communications Inc. "Zoom Video Communications Reports Fourth Quarter and Fiscal Year 2021 Financial Results." Accessed Nov. 19, 2021.

  3. Visble Alpha. "Financial Data." Accessed Nov. 18, 2021.

  4. Zoom Video Communications Inc. "CORRECTION - Zoom Reports Financial Results for the Second Quarter of Fiscal Year 2022." Accessed Nov. 20, 2021.

  5. Zoom Video Communications Inc. "Zoom Reports Financial Results for the First Quarter of Fiscal Year 2022." Accessed Nov. 20, 2021.

  6. Zoom Video Communications Inc. "Form 10-K for the fiscal year ended January 31, 2021," Page 48. Accessed Nov. 19, 2021.

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