Key Takeaways

  • Adjusted EPS was $1.22 vs. the $0.79 analysts expected.
  • Revenue surpassed analyst expectations.
  • Customers contributing over $100K in 12-month trailing revenue was higher than the level expected by analysts.

What Happened

Zoom reported financial results for Q4 FY 2021 that surpassed analysts' expectations. Adjusted EPS rose dramatically, beating analyst forecasts by a wide margin. Revenue also surpassed expectations, and the number of customers contributing more than $100,000 in TTM revenue was over 200 higher than what analysts had forecasted.

"The fourth quarter marked a strong finish to an unprecedented year for Zoom," said founder and CEO Eric S. Yuan.

(Below is Investopedia's original earnings preview, published March 1, 2021.)

What to Look For

Zoom Video Communications Inc. (ZM) filed papers in mid-January to raise $1.5 billion in a common stock offering, a move to cash in on a stock price that has soared amid the COVID-19 pandemic. The cloud-based video conferencing company's growth has exploded as millions of consumers have sheltered and worked at home amid the pandemic. But while the stock is up nearly six-fold since it went public two years ago, it's down sharply from its 2020 high. Now, investors are beginning to assess how the post-pandemic world will affect Zoom's growth.

Investors will be looking intently for signs of whether or not Zoom is able to maintain recently elevated levels of profit and revenue when the company reports earnings on March 1, 2021 for Q4 FY 2021. Unlike many companies closing out their 2020 fiscal years (FY), Zoom is reporting for the final quarter of FY 2021, which ended January 31, 2021. Analysts expect dramatic year-over-year (YOY) growth in adjusted earnings per share (EPS) and revenue.

Investors will also be focused on another key metric, the number of Zoom customers contributing over $100,000 in 12-month trailing (TTM) revenue. These customers tend to be large enterprises that are less likely to switch to a new video-conferencing platform. These customers also may give Zoom a more secure and stable source of revenue in the post-pandemic world. Analysts expected continued YOY growth in Zoom's total number of these $100,000 in TTM revenue customers.

As mentioned, shares of Zoom have skyrocketed over the past year. Zoom quickly became the number one video communications platform for people working or studying from home, and its stock price followed its rising popularity. The stock reached a peak around mid-October and has mostly fallen since. But it is still up considerably compared to a year ago. Zoom's shares have provided a total return of 249.6% over the past 12 months, well above the S&P 500's total return of 22.3%.

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

The stock's overall rise has been supported by Zoom's financial results over the past year. Adjusted EPS rose 1,055.8% in Q3 FY 2021, marking the fastest rate of growth since Q1 FY 2020. Revenue was up 366.5%, the fastest pace in at least 11 quarters. The company provided forward guidance for Q4 that forecast a deceleration in growth. Zoom's stock fell following the November 30 earnings report, reversing gains made after its fall from mid-October's peak.

Prior to the October peak, the stock had staged a strong advance over several months, jumping after Zoom released its financial results for Q2 FY 2021. Adjusted EPS spiked 1,025.5% with revenue growth accelerating to 355.0% as many people and businesses were adjusting to the new environment created by the pandemic. Zoom noted that organizations were shifting their focus toward a future where people are able to work, learn, and connect anywhere.

Analysts are forecasting continued strength in Q4 FY 2021. But in accordance to Zoom's third-quarter forward guidance, growth is expected to moderate compared to recent quarters. Adjusted EPS is expected to rise 434.8% as revenue increases 330.3% compared to the year-ago quarter. For full-year FY 2021, analysts expect adjusted EPS and revenue to rise 737.4% and 314.2%, respectively. It would be the fastest pace of growth for either metric in at least three years.

Zoom Key Metrics
  Estimate for Q4 2021 (FY) Q4 2020 (FY) Q4 2019 (FY)
Adjusted Earnings Per Share ($)  0.79 0.15 0.04
Revenue ($M) 810.0 188.3 105.8
Customers contributing over $100K in 12-month trailing revenue 1,442 641 344

Source: Visible Alpha

As already mentioned, investors also will be watching the number of customers contributing over $100,000 in TTM revenue. The number of customers that contribute more than $100,000 in revenue over the previous 12 months from the end of the reporting period provides a measure of Zoom's ability to scale its offerings in accordance with its customers needs and its 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 some people begin returning to their company offices to work.

The number of customers contributing more than $100,000 in TTM revenue has steadily grown over the past four years. Zoom finished FY 2018 with 143 of these large customers. That number more than quadrupled to 641 million at the end of FY 2020. During the first three quarters of FY 2021, the rapid growth continued, with the total number rising 89.9% in Q1, 112.0% in Q2, and 136.1% in Q3. Analysts expect the number of customers contributing more than $100,000 in TTM revenue to rise 125.0% to 1,442 for the final quarter and end of FY 2021. Investors will watch to see if Zoom can maintain that pace of growth throughout the coming year as the post-pandemic world nears.