Zoom (NASDAQ:ZM) Surprises With Q3 Sales, Stock Soars

Adam Hejl /
2021/11/22 4:11 pm EST
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Video conferencing platform Zoom (NASDAQ:ZM) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 35.1% year on year to $1.05 billion. Guidance for next quarter's revenue was surprisingly good, being $1.05 billion at the midpoint, 3.3% above what analysts were expecting. Zoom made a GAAP profit of $340.3 million, improving on its profit of $198.6 million, in the same quarter last year.

Is now the time to buy Zoom? Access our full analysis of the earnings results here, it's free.

Zoom (ZM) Q3 FY2022 Highlights:

  • Revenue: $1.05 billion vs analyst estimates of $1.01 billion (3.06% beat)
  • EPS (non-GAAP): $1.11 vs analyst estimates of $1.10 (1.34% beat)
  • Revenue guidance for Q4 2022 is $1.05 billion at the midpoint, above analyst estimates of $1.01 billion
  • Free cash flow of $374.7 million, down 17.6% from previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 512,100 customers with more than 10 employees
  • Gross Margin (GAAP): 74.2%, up from 66.7% same quarter last year

“In Q3, we held our premier user event, Zoomtopia, on our Zoom Events service. During this immersive, multi-track conference, we showcased how Zoom is placing people at the center of our communications platform, connecting their disparate work streams into our technology, moving beyond enterprises’ ability to collaborate internally, and empowering them to communicate face-to-face with their customers through Zoom Events and our upcoming Video Engagement Center. We also showcased innovations such as hot desking, whiteboarding, and smart gallery, all designed to empower both co-located and remote hybrid workforces as some companies test return to office programs,” said Zoom founder and CEO, Eric S. Yuan.

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.

It is likely that remote and hybrid models of work are here to stay and video conferencing tools are the clear beneficiaries of it.

Sales Growth

As you can see below, Zoom's revenue growth has been incredible over the last year, growing from quarterly revenue of $777.1 million, to $1.05 billion.

Zoom Total Revenue

And unsurprisingly, this was another great quarter for Zoom with revenue up 35.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $29.2 million in Q3, compared to $65.2 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 14.7% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Zoom. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Zoom reported 512,100 enterprise customers with more than 10 employees, an increase of 7,200 on last quarter. That's in line with the number of contracts wins in the last quarter but quite a bit below what we have typically seen over the last year, suggesting that the sales slowdown we saw in the last quarter continues.

Zoom customers with more than 10 employees

Key Takeaways from Zoom's Q3 Results

With a market capitalization of $74.6 billion, more than $5.41 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed the positive outlook Zoom provided for the next quarter’s revenue. And we were also excited to see the really strong revenue growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 7.77% on the results and currently trades at $260.74 per share.

Should you invest in Zoom right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable 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 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.