Video conferencing platform Zoom (NASDAQ:ZM) beat analysts' expectations in Q3 FY2024, with revenue up 3.2% year on year to $1.14 billion. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $1.13 billion was less impressive, coming in 0.3% below expectations. Turning to EPS, Zoom made a non-GAAP profit of $1.29 per share, improving from its profit of $1.07 per share in the same quarter last year.
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Zoom (ZM) Q3 FY2024 Highlights:
- Revenue: $1.14 billion vs analyst estimates of $1.12 billion (1.6% beat)
- EPS (non-GAAP): $1.29 vs analyst estimates of $1.08 (19.5% beat)
- Revenue Guidance for Q4 2024 is $1.13 billion at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow of $453.2 million, up 56.6% from the previous quarter
- Net Revenue Retention Rate: 105%, down from 109% in the previous quarter
- Customers: 3,731 customers paying more than $100,000 annually
- Gross Margin (GAAP): 76.2%, in line with the same quarter last year
Started by Eric Yuan who once ran engineering for Cisco’s video conferencing business, Zoom (NASDAQ:ZM) offers an easy to use, cloud-based platform for video conferencing, audio conferencing and screen sharing.
Video Conferencing
Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
Sales Growth
As you can see below, Zoom's revenue growth has been unimpressive over the last two years, growing from $1.05 billion in Q3 FY2022 to $1.14 billion this quarter.
Zoom's quarterly revenue was only up 3.2% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $1.95 million in Q3 compared to the $33.31 million increase in Q2 2024. Shareholders might want to pay closer attention to this situation as management is guiding for another decline in sales next quarter.
Next quarter's guidance suggests that Zoom is expecting revenue to grow 0.9% year on year to $1.13 billion, slowing down from the 4.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 2.4% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Large Customers Growth
This quarter, Zoom reported 3,731 enterprise customers paying more than $100,000 annually, an increase of 59 from the previous quarter. That's a bit fewer contract wins than last quarter and quite a bit below what we've typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.
Key Takeaways from Zoom's Q3 Results
With a market capitalization of $19.3 billion, a $6.49 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Zoom has the resources needed to pursue a high-growth business strategy.
It was encouraging to see Zoom narrowly top analysts' revenue expectations this quarter, driven by more new customer wins than projected. Its free cash flow also beat Wall Street's estimates significantly. On the other hand, its net revenue retention of 105% missed. Overall, the results could have been better, but the market is rewarding the company for its robust cash generation. The stock is up 6% after reporting and currently trades at $70.02 per share.
Zoom may have had a decent quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.