Can Zoom Take Off Again?
Zoom Video Communications is no longer taken seriously. On occasion, that benefits the business.
The once-famous videoconferencing sensation has been going through a rough patch ever since the pandemic’s early days. The company’s fourth-quarter results were announced late Monday. The growth in revenue for the fiscal year ending January was just 2.6%, continuing a trend of low single-digit percentage growth for the prior six quarters. Among cloud-software companies with yearly revenue of over $1 billion, Zoom has the slowest growth rate, according to S&P Global Market Intelligence. On Monday, Workday, a much bigger cloud service, announced a 17% increase in yearly revenue for the same time frame.
Despite investing heavily in AI, Zoom has failed to gain traction in the industry. In September, the business unveiled Zoom AI Companion, a generative AI tool. By October, the number of users had surpassed 125,000, according to the company. In contrast to the BVP Nasdaq Emerging Cloud Index, which has increased by over 16% over the past six months, Zoom’s stock price has fallen by nearly 7%.
At least Zoom’s quarterly earnings on Monday were better set up by a depressed stock. Considering the stock has declined following ten of the previous twelve reports, according to FactSet, the 10% after-hours gain in share price following the report and conference call is a welcome change. In addition to billings, which are a measure of business performed during the time, Zoom’s adjusted operating income for the quarter topped Wall Street’s projections by the biggest margin in a year. At the same time, Zoom announced its second-ever share repurchase plan, this time with a value of $1.5 billion.
The glory days of Zoom’s meteoric rise are long gone. For the current fiscal year, the corporation predicted $4.6 billion in revenue, which is 2% increase and significantly lower than Wall Street’s already gloomy predictions. After seven consecutive quarters of decreases, the company’s consumer side of the business finally steadied in the fiscal fourth quarter, with flat revenue. There was an initial influx of individuals and small businesses into the service during the pandemic, but since then, they have been gradually dwindling in number.
Zoom’s enterprise division, which caters to big companies, has been performing somewhat better recently, but it has also been hit hard by corporate spending cuts and competition from companies like Microsoft and Google, who offer videoconferencing capabilities as part of their bigger software packages. The upcoming fiscal year might be more favorable to that division. Zoom CFO Kelly Steckelberg stated on Monday’s call that fewer customers will be up for renewal this year due to the fact that most of the company’s customers had a “renewal event” in the just finished year. “So we anticipate that will have a significantly reduced effect in FY ’25,” she stated.
Meanwhile, investors in Zoom can take solace in the fact that the firm has accumulated a substantial war chest of over $7 billion in cash and equivalents, making it the fourth largest cloud computing company in this regard. This is a result of relatively good profitability and cash flow. That funds the repurchase and, should the opportunity present itself, might aid the firm in securing a respectable acquisition. The findings were “better than feared,” Citigroup’s Tyler Radke wrote in a Thursday note, adding, “we’d expect [the] stock to retrace recent underperformance.” We finally had a productive Zoom call after what felt like an eternity.
