Zoom Video (NASDAQ:ZM) Reports Q1 In Line With Expectations, Stock Jumps 19%

Radek Strnad /
2022/05/23 4:22 pm EDT
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Video conferencing platform Zoom (NASDAQ:ZM) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 12.2% year on year to $1.07 billion. Guidance for the full year was in line expectations with revenues guided to $4.54 billion at the midpoint, or 0.07% below analyst estimates. Zoom Video made a GAAP profit of $113.6 million, down on its profit of $227.5 million, in the same quarter last year.

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Zoom Video (ZM) Q1 FY2023 Highlights:

  • Revenue: $1.07 billion (small beat)
  • EPS (non-GAAP): $1.03 vs analyst estimates of $0.87 (17.9% beat)
  • Revenue guidance for Q2 2023 is $1.11 billion at the midpoint, above analyst estimates of $1.1 billion
  • The company reconfirmed revenue guidance for the full year, at $4.54 billion at the midpoint
  • Free cash flow of $501.1 million, up 165% from previous quarter
  • Net Revenue Retention Rate: 123%, down from 129% previous quarter
  • Customers: 2,916 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 75.6%, up from 72.2% same quarter last year

“In Q1, we launched Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales, demonstrating our continued focus on enhancing the customer experience and promoting hybrid work. We believe these innovative solutions will further expand our market opportunity for future growth and expansion with customers,” 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 very strong over the last year, growing from quarterly revenue of $956.2 million, to $1.07 billion.

Zoom Video Total Revenue

This quarter, Zoom Video's quarterly revenue was once again up 12.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.42 million in Q1, compared to $20.6 million in Q4 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 9.39% year on year to $1.11 billion, slowing down from the 53.9% 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 11.3% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 2,916 enterprise customers paying more than $100,000 annually, an increase of 191 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

Zoom Video customers paying more than $100,000 annually

Key Takeaways from Zoom Video's Q1 Results

With a market capitalization of $26.8 billion, more than $5.72 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 provide next quarter revenue outlook exceeding analysts’ expectations and the very strong free cash flow. On the other hand, it was less good to see the deterioration in revenue retention rate and the revenue growth has slowed down after the strong two years. Overall, this quarter's results were decent, showing Zoom is staying on target. The company is up 19% on the results and currently trades at $106.32 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.