Zoom’s corporate bet delayed as company cuts sales forecast


Results from Zoom Video Communications Inc. showed that its transition from an essential Covid-era tool to an enterprise commerce platform is going to take longer than expected. Shares have fallen the most in nine months.

While Zoom said it was generating a growing percentage of revenue from enterprise customers, the software maker didn’t add as much in the fiscal second quarter as analysts had expected. The company also slashed its full-year revenue forecast, saying it was losing sales to consumers and small businesses faster than expected.

The results, said Citigroup Inc. analyst Tyler Radke, were “even worse than we expected.”

Read more: Zoom Video Falls as Online Unit Weighs on Orientation: Street Wrap

Zoom’s breakneck growth during the pandemic has slowed significantly as offices reopen and competition intensifies from Microsoft Corp’s Teams video communications platform. Online sales to consumers and small businesses are expected to decline 7% to 8% this year, Chief Financial Officer Kelly Steckelberg said on a conference call after the earnings announcement.

Shares fell 15% to $82.57 at 12:12 a.m. in New York, the biggest one-day drop since Nov. 23. The stock has plunged 47% this year through Monday’s close, missing the rally in tech stocks since mid-June. .

Zoom responded by focusing more on large enterprise customers and offering an expanded line of products such as software for customer contact centers. In June, the company unveiled a new service pack – Zoom One – to boost offerings such as internet-connected phones and physical conference rooms. Analysts are generally positive about these secondary offerings, particularly Zoom Phone, but believe they will take time to bear fruit. Sales to corporate clients are expected to increase more than 20% this year, Steckelberg said.

CEO Eric Yuan also expressed his confidence in the company’s new products. “Our recently launched Zoom Contact Center and Zoom IQ for Sales products saw great early successes while Zoom Phone delivered breakthrough results, reaching a record number of licenses sold during the quarter,” he said in the communicated.

Revenue will be about $1.1 billion for the period ending October, the San Jose, Calif.-based company said in a statement Monday. Analysts on average had expected $1.16 billion, up about 10% from a year earlier, according to data compiled by Bloomberg. Earnings, excluding certain items, will be 82 cents to 83 cents per share, compared with analysts’ average estimate of 91 cents.

The company also cut its full-year sales forecast to around $4.4 billion from its May projection of $4.55 billion. About $115 million of the reduction is due to “the broader economic environment” and $35 million is due to the strengthening US dollar, Steckelberg said on the call.

Learn more about Zoom’s bet on enterprise clients for growth

Fiscal second-quarter sales rose 7.6% to $1.1 billion, Zoom’s weakest year-over-year growth on record. Analysts had forecast an average of $1.12 billion, making this the first quarter the company missed revenue estimates. Earnings, excluding certain items, were $1.05 per share, versus an average estimate of 92 cents.

Revenue in the region, including Europe, fell 8% in the quarter due to the Russian-Ukrainian war, the strong US dollar and weakness in the consumer segment, the company said.

“We recognize that revenue results are disappointing and below our expectations as we navigate the current environment,” Steckelberg said.

In the period ended July 31, the company said it had 204,100 enterprise customers, an 18% increase from a year earlier. The growth was down from a 24% increase in the prior quarter. Analysts, on average, expected Zoom to bring in 205,854 enterprise customers.

While the enterprise segment saw steady growth during the quarter, customer additions were “pretty weak,” which may be a leading indicator of future headwinds, Citigroup’s Radke wrote in a post-earnings note. .

What Bloomberg Intelligence says:

While business strength bodes well for growth, weakness in online business could persist beyond the end of the year, as securing new users in this segment can be difficult in a turbulent economy.

John Butler, Senior Telecommunications BI Industry Analyst

(Updates with the trade in the fifth paragraph.)

More stories like this are available at bloomberg.com

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