Though nobody really expected the exponential growth to contribute forever, the reality of the tapering off of Zoom’s revenue growth has been a sobering reminder of the changes wrought by the pandemic.
From the peak that it reached in October 2020, Zoom has lost almost 75% in terms of its value. The current year’s revenues are projected to be in the range of $4.53 to $4.55 billion. As employees start returning to work from the office, and as companies and people ease up on their purchase of software for remote work and collaboration, the growth of 10.7% implied by these numbers is disappointing compared to the expectation for $4.71 billion as per a poll of analysts conducted by Refinitiv.
The weaker than expected Q1 revenue projections led to a 13% decline in shares before bouncing back.
Summary of quarterly results
- Adjusted earnings per share at $1.29, against a Refinitiv analyst poll expectation of $1.06.
- Revenue at $1.07 billion, against a Refinitiv analyst poll expectation of $1.05 billion.
- 21% increase in revenue for the period ending on 31st January compared to the corresponding period a year earlier, lower than the 35% growth in the previous quarter.
- Net income for the quarter was $490.5 million in the quarter, an increase of 88%. At the same time, gross margin for the period increased from 74.2% in the prior period to 76% for the current one.
- Number of clients with over 10 employees decreased from 512,000 in October to 509,800 now. Though this information will be visible in its investor decks till the end of the year, effective this quarter, Zoom plans to stop reporting further updates on this number.
On a video call with analysts, Zoom’s chief of finance Kelly Steckelberg said, “What’s happened over time as we see this tremendous growth in online as a channel, it started to kind of overlap there, which is why we don’t think it’s really the appropriate metric to use any longer going forward,” explaining the move.
It will, instead, start reporting its data on enterprise customers, of which they currently have 191,000, which, in comparison to the previous year’s data, is higher by 35%, and their spending increases or decreases as reflected in dollar spends. This metric, called the dollar expansion rate, has been reported at 130%.
Projections for current fiscal year and quarter
Steckelberg expects a growth of 20% in the enterprise business in the current financial year, with the online business growth being flat. According to her, the smaller customers have a tendency to leave and then come back again.
Zoom’s projections for the year, as well as the quarter, are more modest as compared to analyst expectations. Current quarter sales are expected to be between $1.07 to $1.075 billion, an increment of 12%. The Refinitiv analyst poll had expectations of revenue coming in at $1.1 billion.
The full-year projection has been covered earlier in this article.
History and growth of Zoom
Zoom became one of the beneficiaries of the pandemic-induced shutdowns and work from home impositions which gave a fillip to video communications over the internet with a product that was ready and already being used. Its market cap peaked at $159 billion in October 2020 when the world was still learning to come to terms with Covid-19. At that time, the market cap of CISCO was $170 billion. Of course, since then Zoom has lost 75% of its value and the difference between the valuation of the companies is about $190 billion now.
Zoom was founded by Eric Yuan, who was one of the early developers at Webex, a product similar to Zoom, which was acquired by CISCO in 2007.
Bill McDermott, CEO of service-desk software ServiceNow, and one-time CEO of SAP will be joining the Zoom Board in place of investor Bart Swanson, as informed by the company.
Before the announcement, which was after hours, Zoom shares were trading 29% down for the year, against a 9% lower value for the S&P 500 index in the same period.