Shares of Zoom Video Communications (NASDAQ: ZM) fell early this week—as much as 9 percent—after the company carved out some of its earnings and revenue guidance for the year. Overall, the video-conferencing firm reported adjusted earnings of $1.05 per share, which is better than the $0.94 per share analysts had expected.
It looks like Zoom's concerns are not isolated, though, as industry competitors are also feeling the slump. For example, [Micrsoft product] Skype (NASDAQ: MSFT) was also down, slightly, during the same week that Zoom released its report, as are competitors Twitter (NYSE: TWTR) and Snap (NYSE: SNAP). Even Alphabet (NASDAQ: GOOGL) struggled to find footing with its newer Google Meet product, though, its outlook remains positive as they have a bit more room to maneuver with its diverse catalog of products.
Earnings Are Up But Growth Is Down
While they certainly outperformed in terms of earnings, their second fiscal quarter numbers are about 25 percent lower than growth from Q1. In addition, net income in the second quarter fell from $316.9 million from the same quarter a year ago to just $45.7 million. Furthermore, revenue did not meet expectations: $1.10 billion instead of the $1.12 analysts had anticipated, even as this is the fifth consecutive quarter registering at least $1 billion in sales.
Overall, Zoom shares are down 47 percent on the year, nearly four times the 13 percent drop that the S&P 500 has experienced in the same time frame.
Zoom Coasting on Consistent Earnings Growth
As mentioned, the current price target is based on the most recent report detailing that earnings per share is $1.05 on sales of $1.1B, beating the analyst estimate. Zoom has consistently beat the earnings estimate for the last four consecutive quarters. For example, the range for Q2 of 2021 was $1.14 to $1.26 with a consensus target of $1.16. The actual reported earnings of $1.36 beat not only the target but the range as well.
The $1.11 earnings reported for third quarter 2021 also beat the analyst consensus estimate of $1.09, though did not beat the range. However, EPS came out on top again in the following quarter, Q4, when the reported earnings of $1.29 easily beat the top range estimate of $1.17. Then, for the first quarter of this year, the $1.03 reported earnings settled into the range again, beating the estimate but not the range.
It appears Zoom consistently beat the annual range estimate as well. In 2019, for example, the annual reported earnings of $0.35 beat the $0.28 high estimate. Similarly, in 2020, the reported earnings of $3.34 beat the high estimate of $2.95.
Enterprise Customer Slump Drags Revenue
Revenue of $1.1 billion, which is lower than the $1.2 billion they had originally expected. This may be due to the fact that Zoom had did not see as much enterprise customer growth as previous quarters. Indeed, Zoom CFO Kelly Steckelberg has blamed their poor performance on a strong US dollar, saying that online business and sales did not pick up until the end of the quarter, which negatively impacted revenue.
Specifically, Steckelberg notes that Zoom had approximately 204,100 enterprise customers at the end of the quarter. This an increase of less than 3 percent from the month prior, and that is important because this metric represents 54 percent of the company's total revenue.
Zoom Lowers Guidance Out of Caution
That said, Zoom has also lowered its revenue guidance for fiscal 2023, from $4.54 billion to $4.39 billion, also reducing their adjusted earnings per share target of $3.67. Alas, the company appears to suspect that business volume will continue to slow by—as much as 8 percent—in 2023. For this reason, Zoom has already put into motion a strategy to change spending expectations across the second half of the year in order to prioritize business areas with better ROI. This includes sectors like sales operations and R&D. Also, Steckelberg admits, they may be able to improve revenue with more discipline in their price options.
All of this in mind, a score of Wall Street analysts offering 12-month price target over the last 3 months have given Zoom an average price target of $132.13, with a high estimate of $190 and a low of $91.
Considering that the 52-week range for Zoom stock is currently $79.03 to $357.93, this new price target is definitely in the lower half of the range. At the same time, with a P/E ratio of $43.89 the stock is sitting in the middle, so while it could be considered Neutral, some might recommend it is a good time to BUY.
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