Zoom Video Communications stock fell in premarket trading Tuesday after the company reported more than $1 billion in quarterly revenue Monday, topping analyst expectations. But the company’s third-quarter earnings guidance failed to impress Wall Street.
Shares of Zoom (ticker: ZM) were down more than11% in premarket trading Tuesday.
Zoom Video reported fiscal second-quarter net income of $316.9 million, which amounts to $1.04 a share, compared with $185.6 million, or 63 cents a share, in the year-ago period. Adjusted for stock compensation, among other things, earnings were $1.36 a share. Revenue rose 54% to $1.02 billion.
Analysts had expected adjusted earnings of $1.16 on revenue of $991.2 million.
In a conference call, chief financial officer Kelly Steckelberg said the results marked Zoom’s first billion-dollar quarter, but that the company’s growth would begin to normalize, “especially when compared to the unprecedented year-over-year comps.”
Steckelberg said the company finished the quarter with roughly half a million customers with more than 10 employees, which accounted for 64% of revenue.
Zoom said that it expects third-quarter adjusted earnings of $1.07 to $1.08 a share, and revenue of about $1.02 billion; analysts expected non-GAAP earnings of $1.10 a share on revenue of $1.02 billion.
For the full year, Zoom forecast earnings of 4.75 and $4.79 a share on revenue of $4.01 billion to $4.02 billion. Analysts had modeled adjusted earnings of $4.68 a share and revenue of $4.01 billion. For the full year, analysts expect revenue growth to slow to 51% from 326% in the year-ago period.
Steckelberg said the company’s forecast assumes online sales will be a headwind in the coming quarters, as “smaller customers adjusted to the evolving environment” caused by the pandemic. A significant portion of the company’s business is billed monthly and purchased online.
As a pandemic winner, Zoom finds itself in an interesting spot. Some stay-at-home stocks have hit on hard times because what they offered isn’t need in a world that’s open again. Campbell Soup (CPB) has dropped below its pandemic low because no one is hoarding food anymore and costs are rising, while Peloton (PTON) dropped Friday, in part, because gyms now offer a viable alternative. But life hasn’t totally returned to normal, and many people are still working from home, which means Zoom has more time to make them permanent customers.
That’s one thing investors will be watching, writes RBC analyst Rishi Jaluria—the amount of “churn” in Zoom’s accounts. “Management has consistently communicated expectations for higher than historical churn among customers added in the pandemic,” she explained. “So far, churn has been below expectations.” Zoom is Jaluria’s top pick, with a $450 price target, up 31% from its recent trading price.
Zoom closed regular trading Monday with a 2% gain to $347.50. The stock has advanced 3% this year; the S&P 500 index is up 20%.
Write to Ben Levisohn at firstname.lastname@example.org