Zoom Video Communications shares initially surged more than 8% in aftermarket trading Monday after the company reported quarterly earnings that topped estimates. But ZM stock pared back those gains and closed down on Tuesday.
Despite growth in Zoom's enterprise sales, analysts remain wary of potential competition and cost-cutting among customers and corporate clients.
Zoom reported adjusted earnings of $1.34 per share for its fiscal second quarter ending in July. Analysts polled by FactSet expected earnings of $1.06 a share from the San Jose, Calif.-based company.
Quarterly revenue of $1.14 billion was up 4% year over year and beat Zoom stock analysts' estimates for $1.11 billion. Last year, Zoom earned $1.05 a share on sales of $1.01 billion in the same quarter.
Zoom reported $659.5 million in enterprise sales, up 10.2% from the same period last year.
ZM Stock: Watching Corporate Clients
Analysts have been watching closely how Zoom performs with its corporate clients. Concerns for a potential slowdown in enterprise revenue growth dinged ZM stock following Zoom's first-quarter earnings report in May, despite results that easily beat views.
Zoom closed the second quarter with 218,100 enterprise customers, the company said, up 7% from the same quarter last year. The company also is attracting more high-paying accounts. Zoom has nearly 3,700 customers contributing more than $100,000 in trailing 12 months' revenue, up 18% from the same period last year.
Online revenue, which measures individual subscribing customers, fell 4.3% year over year to $479.2 million.
Zoom also gave a full-year outlook ahead of analyst expectations. Company executives now expect Zoom to earn an adjusted $4.65 per share on $4.49 billion in revenue. Those figures represented the midpoint of its range for the current, full 2024 fiscal year, which ends in January.
Chief Financial Officer Kelly Steckelberg said in written remarks that the "increased total revenue guidance reflects a consistent view on enterprise, with tempered expectations for online for the remainder of the year."
ZM Stock: Analysts Eye Competition, New Products
ZM stock closed down 2.1% to 65.83 on the stock market today. Shares were down about 2% year-to-date at the start of the week.
Despite results that topped expectations, analysts following ZM stock said there are still reasons for caution.
"Upside in both the enterprise and online segments drove the outperformance this quarter, but they did not carry the full beat forward as management expects the online business to remain under pressure in the (second half)," Evercore ISI analyst Peter Levine said in a note to clients.
Levine went on to say: "We are not expecting to see any material improvement in the online churn given the ongoing macro and a weaker international segment (heavily weighted toward online) as growth has not yet returned."
Levine maintained a $75 price target for ZM stock.
Staying Neutral On Zoom
Piper Sandler analyst James Fish maintained a neutral rating and price target of $76 for ZM stock.
"We were impressed with the net-new Direct business upside, but have concerns optimizations will continue, with competition remaining high (including somewhat self-inflicted price-related headwinds across products), and (more than) 80% of the business coming from Meetings," Fish said in his note to clients.
Zoom highlighted growth for some of its products outside of video conferencing. Zoom's phone product reached $500 million in annual recurring revenue, while its business providing customer-service centers reached 500 clients.
The company's ZoomOne platform sales efforts and contact centers are gaining momentum, Piper Sandler's Fish wrote, but "Phone, other non-Meetings products, and duration extension are still not enough to offset the seat-optimizations that organizations are enacting within the Meetings installed-base."
Zoom stock holds a Relative Strength Rating of only 20 out of a best-possible 99, according to IBD Stock Checkup. Further, ZM stock holds an IBD Composite Rating of 68. The best growth stocks have a Composite Rating of 90 or better.
