Zoom Drops 6.8% Despite Exceeding Q3 Expectations

American technology company Zoom Video Communications, Inc. (ZM) reported better-than-expected third-quarter results. Both earnings and revenue exceeded expectations.

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However, following the news, shares of the video conferencing service provider jumped more than 8.5% momentarily, before closing down by 6.8% during the extended trading session on November 22.

The negative sentiment on the stock was due to the sluggish sequential revenue growth registered by the company, with the steady rebound in the economy.

Better-Than-Expected Results

Zoom posted adjusted earnings of $1.11 per share, up 12.1% year-over-year and 2 cents higher than analyst estimates of $1.09 per share.

Furthermore, total revenue jumped 35% year-over-year to $1.05 billion, surpassing Street estimates of $1.02 billion. The solid revenue growth was attributed to new customer acquisitions and expansion across existing customers.

Moreover, customers contributing to more than $100,000 in revenue in the past twelve months increased 94% year-over-year.

Management Comments

Eric S. Yuan, founder, and CEO of Zoom, said, “Through innovation and dedication, we will continue to deliver happiness to our customers… We are well on our way to becoming an indispensable platform for enterprises, individuals, and developers to connect, collaborate, and build in the flexible hybrid world of work. We believe our global brand, innovative technologies, and large customer base position us well for the future.”

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Guidance

Based on the current business momentum and expected future performance, Zoom guided Q4 revenue to be between $1.051 billion and $1.053 billion against the consensus of $1.02 billion. Adjusted earnings are expected to fall in the range of $1.06 per share to $1.07 per share, marginally better than the consensus of $1.05 per share.

Additionally, for the full year fiscal 2022, Zoom projects revenue and adjusted earnings to be in the range of $4.079 billion to $4.081 billion, and $4.84 per share to $4.85 per share, respectively.

Wall Street’s Take

Responding to Zoom’s quarterly performance, JMP Securities analyst Patrick Walravens maintained a Hold rating on the stock, and noted that year-over-year revenue was down from the Q2 and marked the third quarter of deceleration.

Walravens listed a few headwinds for his cautious outlook on Zoom. These include smaller customers with monthly contracts in its online business subject to slow down due to the rebounding economy, slowing deferred revenue and billings growth, and no outlook on the fiscal 2023 growth.

Overall, the Wall Street community has a Moderate Buy consensus rating on the stock based on 12 Buys and 10 Holds. The average Zoom Video Communications price target of $334.47 implies 38.05% upside potential to current levels. Shares have lost 43.7% over the past year.

Blogger Opinion

TipRanks data shows that financial blogger opinions are 81% Bullish on ZM, against a sector average of 70%.