Key Takeaways
- Analysts estimate adjusted EPS of $0.87 vs. $1.32 in Q1 FY 2022.
- The number of customers contributing over $100,000 in 12-month trailing revenue is expected to rise YOY, but at a sharply slower pace than previous quarters.
- Revenue is expected to grow, but at a decelerating pace.
Zoom Video Communications Inc. (ZM), which offers a video-first communications platform, saw its popularity soar during the past two years amid the COVID-19 pandemic. Earnings and revenue skyrocketed. But the company’s growth has decelerated sharply in recent quarters as employees have begun to return to their offices. In this new environment, Zoom’s biggest challenge is how to retain its base of large corporate customers, who are crucial to producing a steady, reliable revenue stream.
Investors will be watching closely at how Zoom management plans to address these challenges when the company reports earnings on May 23, 2022 for Q1 FY 2023. The company’s 2022 fiscal year (FY) ended Jan. 31, 2022. Analysts are not optimistic. They expect Zoom’s quarterly adjusted earnings per share (EPS) to decline for the first time in several years as revenue growth continues to slow.
Investors will also be watching the number of Zoom customers contributing over $100,000 in 12-month trailing (TTM) revenue. This key metric provides an indication of the number of larger enterprises utilizing Zoom’s platform. These customers provide more stable, longer-term revenue streams than smaller customers. Analysts expect the number of customers contributing over $100,000 in revenue to expand at a robust pace YOY, but at a much slower rate than previous quarters.
Shares of Zoom have underperformed the broader market over the past year. The stock outperformed through the first three months of the year. But it sank after the company reported fiscal Q2 earnings in late August 2021 and it has underperformed ever since. Zoom’s shares have provided a total return of -72.9% over the past year, well below the S&P 500’s total return of -0.9%.
Source: TradingView.
Zoom Earnings History
Zoom reported Q4 FY 2022 earnings results that beat analysts’ expectations. Adjusted EPS rose 5.8% compared to the year-ago quarter, marking its slowest pace since earnings declined in the second quarter of FY 2019. Revenue grew 21.4% year over year (YOY), its slowest pace out of any quarter in at least the past four years. Revenue growth was driven by the company’s acquisition of new customers as well as the expansion of services across its existing customers. The company’s board of directors authorized a share repurchase program of up to $1.0 billion to return value to shareholders.
In Q3 FY 2022, Zoom’s earnings and revenue beat consensus estimates. Adjusted EPS increased 11.4% YOY, its slowest since Q2 FY 2019. Revenue expanded 35.2% compared to the year-ago quarter, its slowest pace in at least 15 quarters. The company said that revenue growth was driven by the acquisition of new customers and the expansion of services across its existing customers.
Analysts expect Zoom’s financial performance to deteriorate dramatically in Q1 FY 2023. They forecast the company’s adjusted EPS to fall 33.9% YOY, which would be the first decline in over three years. Revenue is expected to grow 12.3% YOY, marking the slowest pace in at least 17 quarters. For full-year FY 2023, analysts expect adjusted EPS to sink 30.5%, which would be the first annual decline in at least five years. Annual revenue is expected to rise 10.8%, the slowest pace in at least five years.
| Zoom Key Stats | |||
|---|---|---|---|
| Estimate for Q1 FY 2023 | Q1 FY 2022 | Q1 FY 2021 | |
| Adjusted Earnings Per Share ($) | 0.87 | 1.32 | 0.20 |
| Revenue ($M) | 1,073.5 | 956.2 | 328.2 |
| Customers Contributing Over $100K in 12-Month Trailing Revenue | 2,996 | 1,999 | 769 |
As mentioned above, investors will also be watching the number of customers contributing over $100,000 in revenue over the previous 12 months. The size of this customer group provides a measure of two key capabilities: Zoom’s ability to scale its offerings to its users’ needs, and the company’s ability to attract larger organizations to its platform. Large customers are likely to be a more stable source of revenue compared to individuals or smaller organizations who may switch more frequently to other video conferencing services. Securing contracts with large enterprises will be especially important as the global economy continues to emerge from the worst effects of the pandemic and as many people begin returning to their company offices to work. It will also be important to secure those big-revenue-generating customers as competition with other video-communication platforms heats up.
Zoom customers contributing more than $100,000 in TTM revenue have grown significantly in just a few short years. By the end of FY 2019, the company had 344 such customers. That total has expanded to 2,725 as of the end of FY 2022, which ended in January. That’s a nearly eightfold increase in just three years. While growth accelerated all the way through FY 2021 to the first quarter of FY 2022, it has been decelerating ever since. The number of large-contract customers rose 160.0% YOY in Q1 FY 2022. Growth then slowed to 130.6% YOY in the second quarter to a pace of 65.8% by the final quarter of the fiscal year. Analysts expect the pace to slow even further in Q1 FY 2023. They estimate that the number of customers contributing more than $100,000 in TTM revenue to grow 49.9% YOY. That would be the slowest pace in at least 17 quarters.
