Zoom Video (NASDAQ:ZM) Q4 Sales Beat Estimates But Stock Drops 12% On Weak Guidance

Adam Hejl /
2022/02/28 4:12 pm EST
Add to Watchlist

Video conferencing platform Zoom (NASDAQ:ZM) reported Q4 FY2022 results topping analyst expectations, with revenue up 21.4% year on year to $1.07 billion. However, guidance for the next quarter was less impressive, coming in at $1.07 billion at the midpoint, being 2.65% below analyst estimates. Zoom Video made a GAAP profit of $490.6 million, improving on its profit of $260.6 million, in the same quarter last year.

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

Zoom Video (ZM) Q4 FY2022 Highlights:

  • Revenue: $1.07 billion vs analyst estimates of $1.05 billion (1.56% beat)
  • EPS (non-GAAP): $1.29 vs analyst estimates of $1.07 (20.7% beat)
  • Revenue guidance for Q1 2023 is $1.07 billion at the midpoint, below analyst estimates of $1.1 billion
  • Management's revenue guidance for upcoming financial year 2023 is $4.54 billion at the midpoint, missing analyst estimates by 3.97% and predicting 10.7% growth (vs 75.4% in FY2022)
  • Free cash flow of $188.6 million, down 49.6% from previous quarter
  • Net Revenue Retention Rate: 129%, in line with previous quarter
  • Gross Margin (GAAP): 75.9%, up from 69.7% same quarter last year

“In fiscal year 2022, we delivered strong results with total revenue of more than $4 billion growing 55% year over year along with increased profitability and operating cash flow growth as our global customer base continued to grow and find new use cases for our broadening communications platform,” 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 incredible over the last year, growing from quarterly revenue of $882.4 million, to $1.07 billion.

Zoom Video Total Revenue

This quarter, Zoom Video's quarterly revenue was once again up a very solid 21.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $20.6 million in Q4, compared to $29.2 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Zoom Video is expecting revenue to grow 12.1% year on year to $1.07 billion, slowing down from the 191% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $4.54 billion at the midpoint, growing 10.7% compared to 75.4% increase in FY2022.

There are others doing even better than Zoom Video. 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 150% since the IPO last 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 Video reported 509,800 enterprise customers with more than 10 employees, a decrease on the last quarter. We have no doubt shareholders would like to see the company regain its sales momentum.

Zoom Video customers with more than 10 employees

Key Takeaways from Zoom Video's Q4 Results

With a market capitalization of $37.3 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.

It was good to see Zoom Video improve their gross margin this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that Zoom Video's revenue guidance for the full year indicates quite a significant slowdown in growth and missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Zoom Video. The company is down 12.1% on the results and currently trades at $116.53 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.

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.