The News: Zoom Video Communications shares fell about 5% in extended trading on Monday after the company reported fiscal third-quarter earnings and quarterly guidance that exceeded analysts’ expectations. Investors seemed disappointed that the rate of revenue growth, which has accelerated this year, could moderate.
Here’s how the company did:
- Earnings: 99 cents per share, adjusted, vs. 76 cents per share as expected by analysts, according to Refinitiv.
- Revenue: $777.2 million, vs. $694.0 million as expected by analysts, according to Refinitiv.
With the coronavirus pandemic continuing to drive people to Zoom for work, school and family meetings, Zoom’s revenue grew 367% on an annualized basis in the quarter, which ended Oct. 31, according to a statement. In the previous quarter revenue increased 355%, and in the quarter before that, revenue had risen 169%. Read the full news piece on CNBC.
Analyst Take: The sell-off that ensued after Zoom earnings hit had very little to do, in my opinion, with the performance of Zoom this quarter.
The company continued its exponential growth rate, growing revenue by 367% and 32% above analyst estimates. This is a huge result, and the stock’s ensuing selling had more to do with the strong sentiment and run-up to earnings that the company had experienced.
We have seen a trend in the past quarter of stocks seeing big swings up in the days/weeks up to its earnings with the expectation of outperforming the market. Then a sell-off after the result rather than buying–this is a by-product of the results being baked into the stock price rather than swinging due to the performance. We saw this in recent results from the likes of Microsoft, Amazon, NVIDIA, and HP. All falling after posting stronger than expected results but also having strong run-ups ahead of earnings.
While there has been some speculation that the 32% revenue beat versus the 60%+ that came in the previous quarter may be a sign of leveling off, my view is that analysts pushed the expectations a bit higher based on last quarter, which led to a slightly lesser beat percentage-wise. The number to pay attention to is primarily the 367% revenue growth rate. This shows that the demand YoY for the video conferencing software provider is still very high.
Estimates going forward are suggesting another 300% growth quarter ahead. This, plus the 80% revenue growth from new customers, gives investors more reasons to be encouraged.
What Zoom Has to Worry About
Zoom’s biggest concerns going forward should be the continued momentum of Microsoft as well as the possible acquisition of Slack by Salesforce that is set to be announced. Still, strong players like Cisco, Google, 8×8, Ring Central, and newcomers like Pexip challenge for video business haven’t stunted the big growth numbers for Zoom.
The other worry, as a whole, is the encouraging vaccine news. This is somewhat ironic, but Zoom’s strength has been hinging somewhat on the cancellation of so many in-person meetings and events. From schools to enterprise, many have turned to Zoom. As the vaccine rolls out and some in-person events begin to resume, there could be some pullback for Zoom.
Overall Impressions of Zoom Earnings
Great quarter, more solid results. Not a lot to be alarmed by, but as I suggested, there may be a day of reckoning ahead where Zoom growth will come back down to earth.
As it stands, there is at least one more huge growth quarter for the company, and then growth may level out a bit.
The next big focus will need to be on innovation and diversification. With the future likely looking different for remote meetings, Zoom will need to find ways to grow revenue as its current product offering matures and Covid-19 is eradicated.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.
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