Kayode Omotosho
3 min read
What Happened?
Shares of video communications platform Zoom (NASDAQ:ZM) fell 7.8% in the afternoon session after the company issued weaker-than-expected third-quarter profit guidance, overshadowing its second-quarter earnings beat.
According to a company press release, Zoom reported second-quarter revenue of $1.28 billion, up 4.9% year-over-year, slightly edging out analysts’ expectations of $1.27 billion. Adjusted earnings per share of $1.55 also topped estimates of $1.48. Top-line results were supported by billings growth of 5.2% year-over-year to $1.34 billion, and the company ended the quarter with 4,625 customers paying more than $100,000 annually. However, underlying growth metrics showed signs of stalling, with the net revenue retention rate sitting at 99% and online revenue experiencing sluggish 0.6% growth.
Investors also weighed emerging margin pressures during the quarter. GAAP operating margin declined to 24.6% from 26.4% in the prior-year period, free cash flow margin dipped sequentially to 37%, and adjusted operating income of $510.3 million (a 40% margin) merely met consensus estimates. Looking ahead, the $30.74 billion company projected third-quarter adjusted earnings per share between $1.46 and $1.48, falling short of the $1.50 Wall Street consensus. While management did raise its full-year adjusted EPS guidance by 2% to $6.10 at the midpoint and slightly lifted its full-year revenue outlook to $5.09 billion, the light near-term profit forecast ultimately dampened investor enthusiasm.
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What Is The Market Telling Us
Zoom’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 30 days ago when the stock gained 3.6% on the news that the company announced it has opened its API access to all customers, including trial accounts, expanding its native integration with automation platform Zapier. Previously restricted to select paid plans, the move allows customers to connect ZoomInfo’s intelligence with thousands of other applications to automate workflows without requiring a major IT project. The positive news was bolstered by recent reports of significant insider buying, suggesting increased optimism about the company’s prospects. Additionally, ZoomInfo spotlighted several customer wins where its platform helped organizations improve targeting and generate revenue, reinforcing the value of its software.
