Zoom (NASDAQ:ZM) Surprises With Q4 Sales, Stock Jumps 13.2%

Full Report / February 26, 2024

Video conferencing platform Zoom (NASDAQ:ZM) reported Q4 FY2024 results topping analysts' expectations, with revenue up 2.6% year on year to $1.15 billion. The company expects next quarter's revenue to be around $1.13 billion, in line with analysts' estimates. It made a non-GAAP profit of $1.42 per share, improving from its profit of $1.22 per share in the same quarter last year.

Zoom (ZM) Q4 FY2024 Highlights:

  • Revenue: $1.15 billion vs analyst estimates of $1.13 billion (1.4% beat)
  • EPS (non-GAAP): $1.42 vs analyst estimates of $1.15 (23% beat)
  • Revenue Guidance for Q1 2025 is $1.13 billion at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for the upcoming financial year 2025 is $4.6 billion at the midpoint, missing analyst estimates by 1.3% and implying 1.6% growth (vs 3.1% in FY2024)
  • Free Cash Flow of $332.7 million, down 26.6% from the previous quarter
  • Net Revenue Retention Rate: 101%, down from 105% in the previous quarter
  • Customers: 3,810 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 75.9%, up from 73.7% in the same quarter last year
  • Market Capitalization: $19.3 billion
  • Zoom’s Board of Directors has authorized a stock repurchase program of up to $1.5 billion of Zoom’s outstanding Class A common stock.

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.

The company became a household name during the Covid pandemic and today it's used not only for business meetings but also by teachers to conduct classes, by developers to write code together, and by lawyers in court.

Zoom didn’t invent video conferencing, it just made it a lot less painful. The platform works reasonably well even on a spotty internet connection, is easy to use, cheap and works across mobile and desktop. The company is notoriously customer obsessed and Yuan, the CEO, has been known to personally write to disgruntled users for feedback.

Video Conferencing

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.

And that is important because there is a lot of competition in the video conferencing space from products like Google Meet, Microsoft (NASDAQ:MSFT) Teams, Cisco (NASDAQ:CSCO) Webex or upcoming startups like Around.co.

Sales Growth

As you can see below, Zoom's revenue growth has been unimpressive over the last two years, growing from $1.07 billion in Q4 FY2022 to $1.15 billion this quarter.

Zoom Total Revenue

Zoom's quarterly revenue was only up 2.6% year on year, which might disappoint some shareholders. However, its revenue increased $9.73 million quarter on quarter, a strong improvement from the $1.95 million decrease in Q3 2024. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Zoom is expecting revenue to grow 1.8% year on year to $1.13 billion, slowing down from the 2.9% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $4.6 billion at the midpoint, growing 1.6% year on year compared to the 3.1% increase in FY2024.

Large Customers Growth

This quarter, Zoom reported 3,810 enterprise customers paying more than $100,000 annually, an increase of 79 from the previous quarter. That's quite a bit more contract wins than last quarter and about the same as what we've seen in past quarters, demonstrating that the business has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

Zoom customers paying more than $100,000 annually

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Zoom Net Revenue Retention Rate

Zoom's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 101% in Q4. This means that even if Zoom didn't win any new customers over the last 12 months, it would've grown its revenue by 1%.

Despite falling over the last year, Zoom still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Zoom's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.9% in Q4.

Zoom Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. Zoom's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Zoom is controlling its costs and not under pressure from its competitors to lower prices.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Zoom's free cash flow came in at $332.7 million in Q4, up 81.5% year on year.

Zoom Free Cash Flow

Zoom has generated $1.47 billion in free cash flow over the last 12 months, an eye-popping 32.5% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Zoom's Q4 Results

We enjoyed seeing Zoom accelerate its new large contract wins this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was below expectations and suggests a slowdown in demand. Overall, this was a mixed quarter for Zoom. But the market reacted very positive to the news of share buyback and the stock is up 13.2% after reporting and currently trades at $71.47 per share.

Is Now The Time?

When considering an investment in Zoom, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Zoom, we'll be cheering from the sidelines. Its growth has been slow, and analysts expect it to deteriorate from here. And while its bountiful generation of free cash flow empowers it to invest in growth initiatives, unfortunately, its customer acquisition is less efficient than many comparable companies.

Zoom's price-to-sales ratio based on the next 12 months is 4.3x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

Wall Street analysts covering the company had a one-year price target of $79.26 per share right before these results (compared to the current share price of $71.47).

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