Video conferencing platform Zoom (NASDAQ:ZM) fell short of analyst expectations in Q2 FY2023 quarter, with revenue up 7.63% year on year to $1.09 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $1.09 billion at the midpoint, or 4.75% below analyst estimates. Zoom Video made a GAAP profit of $45.7 million, down on its profit of $317 million, in the same quarter last year.
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Zoom Video (ZM) Q2 FY2023 Highlights:
- Revenue: $1.09 billion vs analyst estimates of $1.11 billion (1.57% miss)
- EPS (non-GAAP): $1.05 vs analyst estimates of $0.93 (12.6% beat)
- Revenue guidance for Q3 2023 is $1.09 billion at the midpoint, below analyst estimates of $1.15 billion
- The company dropped revenue guidance for the full year, from $4.54 billion to $4.39 billion at the midpoint, a 3.3% decrease
- Free cash flow of $222 million, down 55.6% from previous quarter
- Net Revenue Retention Rate: 120%, down from 123% previous quarter
- Customers: 3,116 customers paying more than $100,000 annually
- Gross Margin (GAAP): 75.1%, in line with same quarter last year
“In Q2, we continued to gain traction as the platform of choice for enterprises looking to deliver flexible, productive solutions for collaboration and customer engagement,” 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.
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 Video's revenue growth has been solid over the last year, growing from quarterly revenue of $1.02 billion, to $1.09 billion.
Zoom Video's quarterly revenue was only up 7.63% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $25.6 million quarter on quarter accelerating up on $2.42 million in Q1 2023.
Guidance for the next quarter indicates Zoom Video is expecting revenue to grow 4.44% year on year to $1.09 billion, slowing down from the 35.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 12.4% over the next twelve months.
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Large Customers Growth
You can see below that at the end of the quarter Zoom Video reported 3,116 enterprise customers paying more than $100,000 annually, an increase of 200 on last quarter. That's in line with the number of contracts wins we are used to seeing over the last year, suggesting that the company is able to maintain its current sales momentum.
Key Takeaways from Zoom Video's Q2 Results
With a market capitalization of $29.6 billion, more than $5.52 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 struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Zoom's revenue guidance for both the full year and the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Zoom Video. The company is down 4.61% on the results and currently trades at $93.01 per share.
Zoom Video may have had a tough quarter, but does that actually create an opportunity to invest 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.
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The author has no position in any of the stocks mentioned.