Zoom Projects Sales That Miss Estimates on Slowing Growth

(Bloomberg) -- Zoom Video Communications Inc. projected sales for the current quarter that fell short of Wall Street's estimates, ramping up pressure on the software vendor to show it can continue to grow beyond the pandemic boom. Shares were little changed in extended trading, after earlier dropping as much as 15%.

Sales will be about $1.07 billion in the period ending in April, the San Jose, California-based company said Monday in a statement. Analysts, on average, estimated $1.1 billion, or growth of about 15% from the quarter a year earlier, according to data compiled by Bloomberg. For the full year, Zoom anticipates revenue as high as $4.55 billion, which was also lower than Wall Street's estimate of $4.75 billion.

“We are addressing a large opportunity as we expect customers will continue to transform how they work and engage with their customers,” Chief Executive Officer Eric Yuan said in the statement. “We plan to build out our platform to further enrich the customer experience with new cloud-based technologies and expand our go-to-market motions.”

Zoom has struggled to maintain the massive growth it experienced during the pandemic when its video conferencing platform served as a critical tool to enable businesses to connect a disparate workforce, teachers to reach students and family members to stay in touch. As more employees return to work in their offices, investors have been skeptical about Zoom's future potential, underscoring a decline of more than 75% in the stock price from an October 2020 high to Monday's close of $132.60 in New York.

Notably, the company is adjusting some of the key metrics it reports to investors. It will no longer disclose on a quarterly basis the number of customers that have more than 10 employees, as well as that cohort's trailing 12-month net dollar expansion rate -- an indicator of how much additional money existing purchasers are spending. At the end of the most recent quarter, Zoom had 509,800 customers that fall within that threshold as of Jan. 31, less than the 572,303 that Wall Street expected, with an expansion rate of 129%, indicating current users are buying more services.

Instead, the company said it will begin to report the number of “enterprise” customers, defined as those users that buy through the direct sales team or through one of its partners, and the segment's net dollar expansion rate. In the fourth quarter, Zoom had 191,000 enterprise customers. The net dollar expansion rate was 130%.

Zoom also launched a $1 billion stock repurchase plan that will run through February 2024 and appointed ServiceNow Inc. CEO Bill McDermott to the board. He will replace departing member and early investor Bart Swanson.

The company has expanded its suite of products in a bid to broaden its business and ease investors' fears. Last week, Zoom unveiled a new cloud contact center product. The company also sells an Internet-enabled replacement for landline phones and technology to help organizations improve meetings that involve remote and in-office workers.

Despite the progress in expanding its product portfolio, Zoom continues to face stiff competition, namely from Microsoft Corp. Analysts, however, expect the market potential to be big enough for both companies to thrive.

“While Teams has improved its product substantially, Zoom remains the superior product and, more importantly, we believe there is room for both to succeed, especially given the large enterprise install base of legacy Webex,” RBC Capital Market analysts wrote in a research note published before Monday's earnings.

Zoom said fiscal fourth-quarter revenue gained 21% to $1.07 billion and profit, excluding some items, was $1.29 a share. Analysts, on average, estimated sales of $1.05 billion and earnings of $1.07.