Zoom Video Communications shares fell up to 9% in extended trading on Monday after the video-calling software maker reduced its full-year earnings and revenue forecast.
Here’s how the business fared:
Earnings: $1.05 per share, adjusted, compared to analysts’ expectations of 94 cents per share, according to Refinitiv. According to Refinitiv, revenue was $1.10 billion, compared to analysts’ expectations of $1.12 billion.
According to a statement, Zoom’s revenue increased 8% year over year in the second fiscal quarter, slowing from 12% growth in the previous quarter. The fiscal second quarter ended on July 31. Zoom’s net income fell to $45.7 million in the quarter from $316.9 million the previous year as the company increased its sales and marketing spending.
According to Kelly Steckelberg, Zoom’s finance chief, the strong US dollar, performance in the company’s online business, and sales that were weighted toward the end of the quarter all had a negative impact on revenue in the quarter.
“We implemented initiatives aimed at driving new online subscriptions, which have shown early promise but were insufficient to overcome the macro dynamics in the quarter,” Steckelberg said during a Zoom call with analysts.
According to the company, at the end of the quarter, it had approximately 204,100 enterprise customers, which are business units with which Zoom’s direct sales teams, resellers, or partners work. This is an increase of less than 3% from 198,900 three months ago. 54% of total revenue is generated by enterprise customers. Zoom customers who do not work directly with Zoom salespeople, resellers, or partners are classified as online business customers.
Zoom projected adjusted fiscal third quarter earnings of 82 cents per share to 83 cents per share on revenue of $1.095 billion to $1.100 billion. Refinitiv polled analysts predicted 91 cents in adjusted earnings per share and $1.15 billion in revenue.
Management reduced its revenue and earnings per share projections for the full fiscal year 2023, calling for $3.66 to $3.69 per share and $4.385 billion to $4.395 billion in revenue, implying 7% growth in the middle of the revenue range. Analysts polled by Refinitiv expected adjusted earnings per share of $3.76 and revenue of $4.54 billion. Three months ago, the outlook was $3.70 to $3.77 in adjusted earnings per share, with revenue ranging from $4.530 billion to $4.550 billion. Executives’ perspectives were primarily influenced by economic conditions.
“As the majority of our revenue has shifted back to the enterprise and we have moved beyond the pandemic buying patterns,” Steckelberg said on the Zoom call. “This contributed to higher-than-expected deferred revenue in Q2, and we have factored it into our outlook because we believe this customer behavior will continue.”
The company expects its online business to be down 7% to 8% for the full fiscal year, compared to its previous forecast of no growth in that segment. Zoom’s spending plans for the second half have been revised to prioritize areas with a high return on investment, such as research and development and sales operations, according to Steckelberg.
Zoom may be able to increase its revenue by being more price-conscious.
“I think we’re a little too nice when it comes to discounting our product, right?” Zoom’s president, Greg Tomb, a former Google cloud executive, stated during the call. “As a result, I believe we have the ability to be a little smarter about how we price and discount our products.”
Zoom announced a new pricing structure called Zoom One during the quarter, as well as an agreement to acquire conversational artificial-intelligence software startup Solvvy. Citi downgraded Zoom stock to sell from hold last week, citing rising competition and economic pressure on small and medium-sized businesses, as well as spending on non-essential categories.
Zoom shares have fallen 47% this year, excluding the after-hours move, while the S&P 500 index is down 13%.