Zoom Video (NASDAQ:ZM) Reports Q3 In Line With Expectations

Petr Huřťák /
2022/11/21 4:14 pm EST

Video conferencing platform Zoom (NASDAQ:ZM) reported results in line with analyst expectations in Q3 FY2023 quarter, with revenue up 4.86% year on year to $1.1 billion. However, guidance for the next quarter was less impressive, coming in at $1.1 billion at the midpoint, being 2.16% below analyst estimates. Zoom Video made a GAAP profit of $48.3 million, down on its profit of $340.3 million, in the same quarter last year.

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Zoom Video (ZM) Q3 FY2023 Highlights:

  • Revenue: $1.1 billion vs analyst estimates of $1.1 billion (in line)
  • EPS (non-GAAP): $1.07 vs analyst estimates of $0.84 (27.2% beat)
  • Revenue guidance for Q4 2023 is $1.1 billion at the midpoint, below analyst estimates of $1.12 billion
  • Free cash flow of $272.6 million, up 22.7% from previous quarter
  • Net Revenue Retention Rate: 117%, down from 120% previous quarter
  • Customers: 3,286 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 75.4%, up from 74.2% same quarter last year

“At Zoomtopia, we announced a number of innovations including Zoom Mail and Zoom Calendar, along with new partnerships that are expected to power and enhance the modern work experience,” said Eric S. Yuan, Zoom founder, and CEO.

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 impressive over the last two years, growing from quarterly revenue of $777.1 million in Q3 FY2021, to $1.1 billion.

Zoom Video Total Revenue

Zoom Video's quarterly revenue was only up 4.86% year on year, which might disappoint some shareholders. But the growth did slow down compared to last quarter, as the revenue increased by just $2.44 million in Q3, compared to $25.6 million in Q2 2023. 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 2.67% year on year to $1.1 billion, slowing down from the 21.4% 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 6.82% 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 3,286 enterprise customers paying more than $100,000 annually, an increase of 170 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 Q3 Results

With a market capitalization of $24.2 billion, more than $5.16 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 the revenue guidance for the next quarter missed analysts' expectations and revenue growth was quite weak. Overall, this quarter's results could have been better. The company is up 1.42% on the results and currently trades at $81.4 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.