Zoom pares back annual forecast as revenue growth slows to single digits

Zoom Video Communications shares fell as much as 9% in extended trading on Monday after the video-calling software maker pared back its full-year forecast for earnings and revenue.

Here’s how the company did:

• Earnings: $1.05 per share, adjusted, vs. 94 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $1.10 billion, vs. $1.12 billion as expected by analysts, according to Refinitiv.

Zoom’s revenue in the second fiscal quarter grew 8% year over year, slowing from 12% growth in the prior quarter, according to a statement. The second fiscal quarter ended on July 31. Zoom’s net income fell to $45.7 million in the quarter from $316.9 million in the year-ago quarter as the company increased spending on sales and marketing.

The strong U.S. dollar, performance in the company’s online business and sales that got weighted toward the end of the quarter negatively impacted revenue in the quarter, Kelly Steckelberg, Zoom’s finance chief, said in the statement.

“We have implemented initiatives focused on driving new online subscriptions, which have shown early promise but were not enough to overcome the macro dynamics in the quarter,” Steckelberg said on a Zoom call with analysts.

The company said at the end of the quarter it had about 204,100 enterprise customers, which are business units that Zoom’s direct sales teams, resellers or partners work with. That’s up less than 3% from 198,900 three months earlier. Enterprise customers deliver 54% of total revenue. Online business customers are Zoom customers that don’t work directly with Zoom salespeople, resellers or partners.

With respect to guidance, Zoom called for adjusted fiscal third quarter earnings of 82 cents per share to 83 cents per share on $1.095 billion to $1.100 billion in revenue. Analysts polled by Refinitiv had been looking for 91 cents in adjusted earnings per share and $1.15 billion in revenue.

Management lowered its projections for the full 2023 fiscal year, calling for $3.66 to $3.69 in adjusted earnings per share and $4.385 billion to $4.395 billion in revenue, implying 7% growth at the middle of the revenue range. Analysts whom Refinitiv surveyed had expected $3.76 per share in adjusted earnings and revenue of $4.54 billion. The view three months ago was $3.70 and $3.77 in adjusted earnings per share and revenue ranging from $4.530 billion to $4.550 billion. Economic conditions primarily caused executives to revise their view.

“As the majority of our revenue has shifted back to the enterprise and we have moved beyond the pandemic buying patterns, we are returning to more normalized enterprise sales cycles with linearity weighted towards the backend of the quarter,” Steckelberg said on the Zoom call. “This contributed to higher than expected deferred revenue in Q2, and as we believe this customer behavior will persist, we have factored it into our outlook.”

The company expects the online business to be down 7% to 8% in the full fiscal year, compared with its forecast for no growth in that part of the business earlier. Zoom has changed its spending expectations for the second half to prioritize areas with a high return on investment, such as research and development and sales operations, Steckelberg said.

Zoom might be able to boost its revenue by being more disciplined about pricing.

“I think we’re a little too nice in how we sell our product from a discounting perspective, right?” Greg Tomb, Zoom’s president and a former Google cloud executive, said on the call. “So I think we’ve got the ability to be a little smarter about how we price and discount our products.”

In the quarter, Zoom announced a new pricing structure called Zoom One and said it had agreed to acquire conversational artificial-intelligence software startup Solvvy. Citi lowered its rating on Zoom stock to sell from the equivalent of hold last week, citing rising competition and economic pressure on small and medium-sized businesses and spending on less essential categories.

Excluding the after-hours move, Zoom shares have fallen 47% so far this year, while the S&P 500 index is down 13% during the same period.

WATCH: Here’s why Citi’s Tyler Radke sees downside ahead for Snowflake and Zoom