The News: Zoom Video Communications shares rose as much as 25% in extended trading on Monday after the company reported fiscal second-quarter earnings that were better than analysts had expected and raised its full-year guidance significantly.
Here’s how the company did:
- Earnings: 92 cents per share, adjusted, vs. 45 cents per share as expected by analysts, according to Refinitiv.
- Revenue: $663.5 million, vs. $500.5 million as expected by analysts, according to Refinitiv.
Read the full news update on CNBC.
Analyst Take: This quarter represented an outstanding result for the company.
When the company grew 169% last quarter, it seemed that perhaps it had hit the peak. Especially with Covid-19 slowing for a period in June. This quarter saw growth nearly 2x of the previous quarter coming in at 355% on an annualized basis–this type of growth was far greater than what the street was looking for, coming in $163 million above expectations.
Furthermore, with 81% of the growth coming from new customers, this wasn’t just upgrades and conversions, but a significant set of new customer wins. Zoom was clearly able to shed any woes that came from its earlier issues with security and support and turn it into impressive growth.
The strong results also led to Zoom upping its guidance for the remainder of the year. This came after a number of financial analysts had been starting to draw revenue targets down expecting Covid-19 to start to drive greater attrition. The company pointed out that its attrition was lower than expected this quarter and that is likely due to the ongoing closures and slow returns to school and work around the United States and abroad.
Overall Impressions of Zoom Q2 Results
Zoom could very well be the winner of Covid-19. Not sure that is a prize that anyone really wants, but there really hasn’t been a company that has had a more meteoric rise that is almost 100% tied to the logistical challenges brought on by the pandemic.
Having said that, it takes sound operations and execution to grow at this rate. The company had some scary moments early on. From China to Zoom Bombings to a plethora of support deficiencies, but the company didn’t let any of those difficult moments dictate its path forward. The company revised its strategy, made some smart hires in the right places and kept its foot on the gas.
The future and the growth trajectory is encouraging, but I do have some caution about the long-term prospects for Zoom. The company has grown a lot off of a series of circumstances that has forced school and work to be done remote. This modality won’t be the only way people meet and learn and do business in the future. There will be a pull back as the virus wains–but this is likely more than a year away. And during this time, I expect Zoom to continue to benefit from the continued concerns about safe environments for human interaction.
The rest of 2020, at the very least, should provide a continued runway for Zoom to grow–As well as Microsoft, Cisco, 8×8, Ring Central and Pexip to name a few. As collaboration continues to be a Covid-19 all-star keeping people working, learning and connected amidst a global pandemic.
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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