- Zoom Video shares were seen edging higher on Tuesday
- This came after the video communication business raised its full-year forecast in response to the third-quarter earnings beat
- The company has been introducing a set of new apps aimed at providing a versatile and integrated platform for effective and efficient remote work
Zoom Video Communications (NASDAQ:) shares rose modestly in early Tuesday trade after the company delivered better-than-expected revenue for the third quarter, thanks to strong enterprise sales.
The results showed Zoom Video is making solid progress with its platform strategy. The company also lifted its full-year outlook, which signals increased visibility into this quarter’s trends.
How Zoom Video Performed in Q3
Zoom Video boosted its revenue guidance for the full year, pushing it above the average analyst estimate. The business now expects to generate revenue around $4.51 billion, up from the prior forecast of 4.495 billion. Analysts were looking for $4.5 billion in FY sales. The adjusted earnings per share outlook is lifted to $4.94 from the prior $4.65, crushing the consensus of $4.66.
For this quarter, Zoom Video sees revenue around $1.13 billion, in line with analyst expectations. Adjusted EPS is expected to be between $1.13 and $1.15, while the Street was at $1.00.
The guidance lift comes after the company said it earned $1.29 in adjusted earnings per share for the quarter, easily above the consensus of $1.10. Sales amounted to $1.137 billion, up 3.2% year-over-year, and higher than the expected $1.12 billion. The adjusted Q3 operating margin came in at 39.3%.
“In Q3, revenue came in ahead of guidance as we bolstered Zoom’s all-in-one intelligent collaboration platform with advanced new capabilities like Zoom AI Companion and continued to evolve our customer and employee engagement solutions,” said Eric S. , Zoom founder, and CEO.
“We are also pleased with our Online business where we drove higher retention and saw usage of our new AI capabilities, enhancing the value of our platform.”
Investors were also pleased to see that the company managed to generate as much as $453.2 million in free cash flow for the third quarter, nearly double the expected $260 million. Zoom Video said it ended the quarter with nearly $1.5 billion in cash and cash equivalents.
The Q3 beat was a result of very strong enterprise sales. Zoom Video ended the quarter with 219,700 enterprise customers, which generated $660.6 million in Q3 sales, up 7.5% from the year-ago period.
The number of customers contributing more than $100,000 in trailing 12 months revenue was 3,731, the company added, which represents an increase of 13.5% YoY. Online average monthly churn of 3% was reported for the third quarter, down 10 basis points from the same quarter last fiscal year.
Aggressive Cost Cuts Help Improve Bottom Line
While investors and analysts were happy to see the strength in the enterprise business, they also likely didn’t expect such strong EPS upside from Zoom Video. Earlier this year, the company announced job cuts of as much as 15% of the total workforce.
CEO Yuan announced the elimination of around 1,300 jobs as part of a restructuring initiative while saying he is to blame for the company’s challenges as he allowed the headcount to triple in just two years. As a result, he disclosed his decision to reduce his salary and forgo his bonus.
“Our trajectory was forever changed during the pandemic,”
“We didn’t take as much time as we should have to thoroughly analyze our teams or assess if we were growing sustainably.”
Zoom Video was forced to take aggressive cost-cutting actions as the stock was down 85% from its peak in October 2020. However, the action failed to boost share price with the stock trading near all-time lows.
In addition to aggressively increasing its headcount, Zoom Video is a poster child of a business failing to adapt to the post-pandemic world. The “uncertainty of the global economy”, how Yuan described the environment earlier this year, is impacting customers and demand for the company’s video communication tools.
The company is now trying to counteract decelerating growth by enhancing its family of business-oriented tools. Among other initiatives, the company recently introduced Zoom Clips, which enables users to record, edit, and share high-quality short-form video messages for both internal and external communication.
This new feature aims to facilitate “asynchronous communication,” allowing teams to streamline their interactions, minimize the need for excessive meetings, and mitigate time lost due to unclear communication.
John Beckmann, group product manager at Zoom, said “With Zoom Clips, co-workers have a tool that can help them save precious time by communicating clearly across time zones, allow them to keep and manage their clips in a central place, and help them engage with their teammates asynchronously.”
Zoom Clips represents another addition to Zoom’s comprehensive suite of online communication tools. The company is making sure it has the entire family of apps needed for employees adopting flexible work practices.
The expanded portfolio includes various features within Zoom Team Chat, such as video messages, voice messages, reminders, as well as continuous meeting chat within Zoom Meetings. Additionally, the suite encompasses tools like Zoom Scheduler, Zoom Email, and Zoom Whiteboard.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.