Zoom Video (ZM) Is Sent Lower On Uninspiring Q3 Earnings And Q4 Guidance
2:52 pm Tuesday, November 22nd, 2022
Zoom Video (ZM) remains stuck in its lengthy consolidation pattern after Q3 (Oct) earnings failed to rouse much enthusiasm, especially given the video streaming platform’s underwhelming Q4 (Jan) guidance. The macroeconomic backdrop remains challenging, with FX headwinds and a broad slowdown in spending. Still, it is hard to excuse ZM’s Q4 outlook of $0.75-0.78 in adjusted EPS and $1.095-1.105 bln in sales, representing just 3% growth yr/yr at the midpoint, particularly when considering its still-lofty multiple of ~23x forward earnings.
It also does not help that ZM’s Sales & Marketing expenses continue to climb while other tech firms have offered a new roadmap toward profitability to survive the rising interest rate environment. In Q3, these expenses grew by 27% yr/yr to $301 mln, representing roughly 27.3% of revs, up from 22.6% in the year-ago period.
Again, this is difficult to shrug off, especially when growth is also sluggish. Although expected, sales climbed just 4.9% yr/yr to $1.1 bln in Q3, marking ZM’s lightest quarter since going public over three years ago.
ZM also has been bolstering its new capabilities, such as Zoom Phone, Zoom Rooms, and Zoom Contact Center. These capabilities moderately extended their success in Q3, with Zoom Phone adding 9 customers that purchased over 10,000 seats, bringing the total to 64. ZM did not dive much into details surrounding Rooms and Contact Center, only noting that Rooms contributed growth in the quarter and that both will likely be future revenue drivers.
ZM’s Q3 results underpinned another challenging quarter, countered by some silver linings, such as decent enterprise growth and continued success with Zoom Phone. However, Q4 guidance did not offer much encouragement that ZM is staring at a significant turnaround anytime soon. With big fish swimming in the same waters, such as Microsoft (MSFT), which boasts similar offerings like Teams and Skype, as well as Cisco’s (CSCO) WebEx, ZM’s path ahead remains rife with hurdles.
