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Why Is Zoom Video (ZM) Down 11.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for Zoom Video Communications (ZM - Free Report) . Shares have lost about 11.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zoom Video due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Zoom Q3 Earnings Beat, Expanding Clientele Aids Top Line
Zoom’s third-quarter fiscal 2023 adjusted earnings of $1.07 per share beat the Zacks Consensus Estimate by 27.38% but decreased 3.6% year over year.
Revenues of $1.10 billion increased 5% year over year (7% in constant currency) and beat the consensus mark by 0.41%.
Quarter Details
Revenues from Enterprise customers grew 20% year over year and represented 56% of total revenues, up from 49% in third-quarter fiscal 2022. The number of Enterprise customers grew 14% year over year to over 209,300. The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 117%.
In the fiscal third quarter, customers contributing more than $100,000 in revenues in the trailing 12 months grew 31% to 3,286. These customers accounted for 27% of revenues, up from 22% in the year-ago quarter.
Online average monthly churn in the reported quarter improved to 3.1% from 3.7% reported in the year-ago quarter and 3.6% in the previous quarter.
Revenues grew 11% in America, while international market revenues from APAC declined 3% year over year. EMEA revenues declined 9% year over year due to the stronger dollar and the Russia-Ukraine war.
Operating Details
Non-GAAP gross margin expanded 360 basis points (bps) to 79.5% in the fiscal third quarter of 2023 and 60 bps sequentially.
The sequential improvement was primarily due to optimizing usage across the public cloud and Zoom’s increasing number of co-located data centers.
Research and development expenses increased 59.4% year over year to $107.8 million. Sales and marketing expenses increased 26.6% to $300.6 million, while general and administrative expenses increased 6.1% to $86.9 million.
Non-GAAP operating income decreased 7.4% to $380.9 million year over year. Non-GAAP operating margin contracted 460 bps to 34.6%.
Balance Sheet and Cash Flow
Total cash, cash equivalents, and marketable securities as of Oct 31, 2022, was $5.17 billion. As of Jul 31, 2022, cash, cash equivalents and marketable securities were $5.5 billion.
Adjusted free cash flow was $222.1 million.
Guidance
Zoom expects fourth-quarter fiscal 2023 revenues in the range of $1.095-$1.1105 billion, which at the midpoint represents roughly 3% year-over-year growth or 5% in constant currency.
Non-GAAP operating income is expected between $316 million and $326 million. Non-GAAP earnings are expected in the range of 75 cents to 78 cents per share.
For fiscal 2023, Zoom expects revenues in the range of $4.37-$4.38 billion. At the midpoint, this represents a decrease of over $15 million compared with the previous full-year guidance. Of this decrease, nearly $14 million is due to the stronger dollar.
Zoom expects its gross margin in fiscal 2023 to be roughly 79%.
Non-GAAP operating income is expected between $1.49 billion and $1.5 billion, representing a non-GAAP operating margin of approximately 34%.
Non-GAAP earnings are expected in the range of $3.91-$3.94 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -115.87% due to these changes.
VGM Scores
At this time, Zoom Video has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Zoom Video has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Zoom Video belongs to the Zacks Internet - Software industry. Another stock from the same industry, Model N , has gained 4.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Model N reported revenues of $58.17 million in the last reported quarter, representing a year-over-year change of +13%. EPS of $0.20 for the same period compares with $0.18 a year ago.
For the current quarter, Model N is expected to post earnings of $0.22 per share, indicating a change of +46.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +100% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Model N. Also, the stock has a VGM Score of B.
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Why Is Zoom Video (ZM) Down 11.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Zoom Video Communications (ZM - Free Report) . Shares have lost about 11.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zoom Video due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Zoom Q3 Earnings Beat, Expanding Clientele Aids Top Line
Zoom’s third-quarter fiscal 2023 adjusted earnings of $1.07 per share beat the Zacks Consensus Estimate by 27.38% but decreased 3.6% year over year.
Revenues of $1.10 billion increased 5% year over year (7% in constant currency) and beat the consensus mark by 0.41%.
Quarter Details
Revenues from Enterprise customers grew 20% year over year and represented 56% of total revenues, up from 49% in third-quarter fiscal 2022. The number of Enterprise customers grew 14% year over year to over 209,300. The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 117%.
In the fiscal third quarter, customers contributing more than $100,000 in revenues in the trailing 12 months grew 31% to 3,286. These customers accounted for 27% of revenues, up from 22% in the year-ago quarter.
Online average monthly churn in the reported quarter improved to 3.1% from 3.7% reported in the year-ago quarter and 3.6% in the previous quarter.
Revenues grew 11% in America, while international market revenues from APAC declined 3% year over year. EMEA revenues declined 9% year over year due to the stronger dollar and the Russia-Ukraine war.
Operating Details
Non-GAAP gross margin expanded 360 basis points (bps) to 79.5% in the fiscal third quarter of 2023 and 60 bps sequentially.
The sequential improvement was primarily due to optimizing usage across the public cloud and Zoom’s increasing number of co-located data centers.
Research and development expenses increased 59.4% year over year to $107.8 million. Sales and marketing expenses increased 26.6% to $300.6 million, while general and administrative expenses increased 6.1% to $86.9 million.
Non-GAAP operating income decreased 7.4% to $380.9 million year over year. Non-GAAP operating margin contracted 460 bps to 34.6%.
Balance Sheet and Cash Flow
Total cash, cash equivalents, and marketable securities as of Oct 31, 2022, was $5.17 billion. As of Jul 31, 2022, cash, cash equivalents and marketable securities were $5.5 billion.
Adjusted free cash flow was $222.1 million.
Guidance
Zoom expects fourth-quarter fiscal 2023 revenues in the range of $1.095-$1.1105 billion, which at the midpoint represents roughly 3% year-over-year growth or 5% in constant currency.
Non-GAAP operating income is expected between $316 million and $326 million. Non-GAAP earnings are expected in the range of 75 cents to 78 cents per share.
For fiscal 2023, Zoom expects revenues in the range of $4.37-$4.38 billion. At the midpoint, this represents a decrease of over $15 million compared with the previous full-year guidance. Of this decrease, nearly $14 million is due to the stronger dollar.
Zoom expects its gross margin in fiscal 2023 to be roughly 79%.
Non-GAAP operating income is expected between $1.49 billion and $1.5 billion, representing a non-GAAP operating margin of approximately 34%.
Non-GAAP earnings are expected in the range of $3.91-$3.94 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -115.87% due to these changes.
VGM Scores
At this time, Zoom Video has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Zoom Video has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Zoom Video belongs to the Zacks Internet - Software industry. Another stock from the same industry, Model N , has gained 4.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Model N reported revenues of $58.17 million in the last reported quarter, representing a year-over-year change of +13%. EPS of $0.20 for the same period compares with $0.18 a year ago.
For the current quarter, Model N is expected to post earnings of $0.22 per share, indicating a change of +46.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +100% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Model N. Also, the stock has a VGM Score of B.