Zoom admits that new business deals are getting harder to close and its shares fall

Shares of Zoom Video Communications Inc. lost more than 6% of their value in extended trading today after the company posted mixed financial results in the third quarter. Earnings beat Wall Street expectations, but revenue was only in line with analyst forecasts, while the company’s guidance for the next quarter fell short.

Zoom reported third-quarter earnings before certain costs, such as stock compensation of $1.07 a share, down from the $1.11 profit it posted a year earlier, but easily topping Street’s target of 83 cents. Revenue for the period came in at $1.1 billion, up 5% from a year ago and just above the consensus estimate of $1.09 billion. Overall, Zoom’s net income came in at $48.4 million in the quarter, well below the $340.3 million profit it posted a year earlier.

Zoom founder and CEO Eric Yuan (pictured) insisted that customers are increasingly turning to the company to enable flexible work environments and empower authentic connections and collaboration.

“Proactively addressing these needs with Zoom’s expanding platform continues to be our focus in this dynamic environment,” he said. “In the third quarter, we drove revenue above guidance with continued momentum in Enterprise. In addition, our non-GAAP operating income was significantly higher than our outlook, setting us up to end the year with full-year revenue growth, strong GAAP and non-GAAP profitability, and free cash flow that we expect will be at the high end of our $1 billion to $1.15 billion range.”

Two years earlier, at the height of the COVID-19 pandemic, Zoom was struggling to keep up with demand as global shutdowns caused its platform to be overwhelmed by new users trying to keep their businesses running on a regular basis. remote. Pandemic-fuelled usage helped drive a staggering 300% increase in revenue in 2020. Now, however, Zoom’s challenge is adapting to the new post-pandemic reality, and it has struggled to keep its shareholders happy. With growth near a standstill, Zoom shares have fallen more than 85% from their peak in October 2020, even more than 50% year-to-date.

In addition to the economy reopening, which means more real-life meetings are taking place, Zoom has faced a big challenge from rivals like Microsoft Corp., which has poured money into its Teams service. Other rivals include Cisco Systems Inc.’s Webex and Salesforce Inc.’s Slack. As a result of those challenges, Yuan told analysts on a conference call that the company is now seeing “increased deal scrutiny for new business.”

That’s not to say that Zoom isn’t winning those deals, added the company’s chief financial officer, Kelly Steckelberg, it’s just that they’re taking longer to close than before.

As if to underscore that point, Steckelberg noted that Zoom is still adding large corporate clients. At the end of the quarter, the company had 209,300 business customers, up from 204,100 three months earlier. However, Zoom’s online business, which includes smaller customers who sign up directly through its website, was down 9% in the quarter.

These realities have forced Zoom to take a more cautious stance regarding its fiscal 2023 guidance. The company said it now seeks full-year earnings of between $3.91 and $3.94 per share, having targeted previously at a range of $3.66 to $3.69 per share. In terms of revenue, it is looking at between $4.37 billion and $4.38 billion, down from its previous range of $4.39 billion to $4.4 billion.

For the fourth quarter, Zoom said it expects earnings of 75 cents to 78 cents a share on revenue of about $1.1 billion, compared with Wall Street’s forecast of 81 cents a share on sales of $1.1 billion.

Zoom hasn’t yet offered any guidance for fiscal 2024, but Steckelberg said that while the company is working on it, it’s being “very, very thoughtful about prioritizing investments.” In addition, Zoom plans to lower its hiring rate as the new fiscal year approaches, he said.

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