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Zoom's revenue forecast tops estimates amid 2021 concerns

Investors worry about its valuation, costs and performance sustainability

Zoom is trying to diversify its capabilities so it can grow post-Covid-19.

ZOOM Video Communications Inc gave a revenue forecast for the current quarter that topped analysts' estimates but suggested a slight decline in its explosive growth, touching off concerns among investors that the software maker's pandemic boom may be coming to an end.

Revenue will be as much as US$811 million in the period that ends in January, the San Jose, California-based company said on Monday in a statement. Analysts, on average, projected US$719 million. The company's sales guidance, at the high end, estimates a 330 per cent increase from a year earlier - a slight decline in the year-over-year growth from the previous two quarters.

Zoom's projected slowing revenue expansion in the current period highlights investors' concerns that 2021 won't be as favourable for the software maker as this year, when the company gained customers forced to work and go to school remotely. Zoom's stock has jumped dramatically in 2020, heightening questions about whether the company is overvalued. Wall Street has fawned over the company for its accelerating sales growth, but analysts have raised questions about how long it might last.

Investors also may be disappointed by cost issues. The company reported adjusted gross margin of 68.2 per cent in the fiscal third quarter, compared with 82.9 per cent in the same period a year earlier and 72.3 per cent in the previous period. Analysts had expected 71.8 per cent. Zoom said the margin decline was due to expenses associated with public cloud services and supporting non-paying users.

Executives said investors should expect similar numbers into the next fiscal year before the gross margin starts to improve.

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Zoom said sales increased 367 per cent to US$777.2 million in the quarter, which ended on Oct 31. Profit, excluding some items, was 99 cents a share. Analysts projected revenue of US$693.4 million and adjusted profit of 75 cents.

CEO Eric Yuan has tried to diversify Zoom's capabilities for large enterprises, small- and mid-sized businesses and individuals so the company can grow after Covid-19 is controlled and greater numbers of workers return to their offices. BLOOMBERG

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