Zoom admits new business deals are getting tougher to close and its stock drops

Zoom admits new business deals are getting tougher to close and its stock drops

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Shares of Zoom Video Communications Inc. lost more than 6% of their value in extended trading today after the company posted mixed third quarter financial results. Profits beat Wall Street’s expectations but revenue was only in line with analyst’s forecasts, while the company’s guidance for the next quarter came up short.

Zoom reported third quarter earnings before certain costs such as stock compensation of $1.07 per share, down from the $1.11 profit it posted a year earlier, but easily beating the Street’s target of 83 cents. Revenue for the period came to $1.1 billion, up 5% from a year ago and just ahead of the $1.09 billion consensus estimate. Overall, Zoom’s net income came to $48.4 million for the quarter, way down from the $340.3 million profit it recorded a year earlier.

Zoom founder and Chief Executive Eric Yuan (pictured) insisted that customers are increasingly looking to the company to enable flexible work environments and empower authentic connections and collaboration.

“Proactively addressing these needs with Zoom’s expanding platform continues to be our focus in this dynamic environment,” he said. “In Q3, we drove revenue above guidance with continued momentum in Enterprise. In addition, our non-GAAP operating income came in meaningfully higher than our outlook, setting us up to finish the year with full-year revenue growth, strong GAAP and non-GAAP profitability, and free cash flow that we expect to be at the high end of our range of $1 billion to $1.15 billion.”

Two years earlier, at the height of the COVID-19 pandemic, Zoom was struggling to keep up with demand as global shutdowns resulted in its platform being overwhelmed with new users who were trying to keep their businesses up and running remotely. Pandemic-driven usage helped drive an astonishing 300% increase in revenue in 2020. Now though, Zoom’s challenge is to adapt to the new, post-pandemic reality and it has struggled to keep its shareholders happy. With growth almost coming to a standstill, Zoom’s stock has fallen more than 85% from its peak in October 2020, including by more than 50% in the year to date.

In addition to the reopening economy, which means more meetings are taking place in real life, Zoom has faced a major challenge from rivals such as Microsoft Corp., which has poured money into its Teams service. Other rivals include Cisco Systems Inc.’s Webex and Salesforce Inc.’s Slack. As a result of those challenges, Yuan told analysts on a conference call that the company is now seeing “heightened deal scrutiny for new business.”

That’s not to say Zoom isn’t winning those deals, added the company’s chief financial officer Kelly Steckelberg, it’s just they are taking longer to close than previously.

As if to underline that point, Steckelberg noted that Zoom is still adding big corporate clients. At the end of the quarter, the company had 209,300 enterprise customers, up from 204,100 three months earlier. However, Zoom’s online business, which includes smaller customers that subscribe directly via its website, declined 9% in the quarter.

These realities have forced Zoom to take a more cautious stance with regards to its fiscal 2023 guidance. The company said it’s now looking at full year earnings of between $3.91 and $3.94 per share, having previously targeted a range of $3.66 to $3.69 per share. In terms of revenue, it’s looking at $4.37 billion to $4.38 billion, down from its earlier range of $4.39 billion to $4.4 billion.

For the fourth quarter, Zoom said it’s expecting earnings of 75 cents to 78 cents per share on revenue of around $1.1 billion, compared to Wall Street’s forecast of 81 cents per share on sales of $1.1 billion.

Zoom hasn’t yet offered any guidance for fiscal 2024, but Steckelberg said that while the company is working on that, it is being “very, very thoughtful about prioritization of investments.” In addition, Zoom is planning to slow its rate of hiring as it approaches the new fiscal year, she said.

Photo: Zoom

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