Zoom gains after profit outlook beats analysts’ estimates
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ZOOM Video Communications gained in late trading after giving an upbeat profit forecast for the current period, signalling that a cost-cutting push is helping offset a sales slowdown.
Earnings will be 96 US cents to 98 US cents in the fiscal first quarter, excluding some items, the software maker said in a statement on Monday (Feb 27). Analysts had estimated 87 US cents.
The outlook suggests Zoom is finding its footing again after a dramatic boom-and-bust cycle during the pandemic. The shares soared in 2020, when Covid-19 lockdowns sent office workers and consumers clamouring for its platform. But Zoom’s stock lost most of its value in 2021 and 2022.
Shares of the San Jose, California-based company rose about 8 per cent on Monday after the report was released.
The company has been grappling with slowing growth and customer turnover, leading it to cut expenses. Earlier this month, Zoom eliminated 15 per cent of its workforce, slashing jobs more aggressively than most of its tech peers have.
The layoffs — in addition to streamlining its cloud spending — helped improve margins, chief financial officer Kelly Steckelberg said in prepared remarks on Monday. “Zoom is dedicated to maintaining a careful balance between growth and profitability,”
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Fourth-quarter sales were US$1.12 billion, up 4.3 per cent from a year earlier. Analysts had estimated US$1.1 billion.
The company had about 213,000 enterprise customers at the end of the quarter, an increase of 12 per cent from a year earlier. That was a bit below the 216,587 projection, but Zoom saw a bigger gain in the number of clients spending more than US$100,000 over the trailing 12 months. Those customers increased 27 per cent to 3,471.
Many of Zoom’s customer defections in recent quarters have come from casual users, including small businesses. Average monthly churn for this group was 3.4 per cent in the quarter, down 0.4 per cent from the same period a year prior.
Larger corporate clients may still be at risk of leaving as well, especially as many contracts come up for renewal in the coming months, Morgan Stanley’s Keith Weiss said in a note before earnings were released. But the company has been working to hold on to those customers. That’s included adding non-video offerings, such as Internet phone and contact centre features.
Zoom chief executive officer Eric Yuan touted those new products on Monday, particularly ones that use artificial intelligence, such as transcription, translation and sales intelligence tools.
“We will layer more AI technologies into our products to help our customers maximise their ROI on our platform and thrive in this new era of computing,” Yuan said on the earnings call. The shares jumped an additional 2 percentage points as he spoke about AI.
Still, the company predicted less revenue for the current quarter than Wall Street anticipated. Sales in the period ending April will be US$1.08 billion to US$1.09 billion, Zoom said. Analysts projected US$1.11 billion. Its full-year outlook was similarly shy of estimates: Zoom said sales will be about US$4.45 billion, while analysts expected US$4.59 billion.
“While the macroeconomic situation continues to negatively impact our overall growth, we have maintained a healthy balance sheet and operating cash flow generation,” Yuan said in the statement.
The company also has been looking for acquisition targets and considers that part of Zoom’s strategy for the fiscal year, Steckelberg said on the earnings call.
Yuan founded Zoom in 2011 after leaving Cisco Systems’s web-conferencing division WebEx. When announcing layoffs earlier this month, Yuan said he would cut his base salary 98 per cent and forgo a bonus. BLOOMBERG
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