Zoom Video (ZM) Q1 Earnings: What to Expect

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Shares of Zoom Video (ZM) have been punished mercilessly over the past year, falling some 70% compared to 5% decline for the S&P 500 index. Investors have grown concerned that the video conferencing specialist will struggle to retain its large enterprise customer base in the years ahead.

Since the stock reached its all-time high of $588.84, it has fallen to a recent low of $85. Currently trading near a 52-week low, investors want to know if now is a good time to bet on a rebound. The video collaboration platform provider is set to report first quarter fiscal 2023 earnings results after the closing bell Monday. Projecting Zoom’s quarterly adjusted earnings per share to decline for the first time in several years, analysts aren’t optimistic, particularly as revenue growth continues to slow.

That said, the company has surpassed the Street’s top and bottom line estimate in each quarter over the past two years. To reverse the stock’s bearish trend, Zoom will need to demonstrate that it can effectively grow its large enterprise customer business as it expands its ecosystem. One key metric to keep an eye on will be the number of Zoom customers contributing over $100,000 in 12-month trailing revenue. That customer tier tends to be more stable, providing Zoom longer-term revenue streams than smaller customers.

Investors will also focus on the company’s guidance as fierce competition from the likes of Microsoft (MSFT) has created a fundamental risk to Zoom’s business. Nevertheless, the stock at current levels starts has become more attractive and enticing enough to initiate small position. But to reverse the current bearish trend, Zoom on Monday will have to deliver a strong revenue and earnings beat, along with growth re-acceleration.

For the three months that ended April, Wall Street expects the San Jose, Calif.-based company to earn 87 cents per share on revenue of $1.07 billion. This compares to the year-ago quarter when earnings came to $1.32 per share on revenue of $956.24 million. For the full year, ending in January, earnings are projected to decline 30% year over year to $3.53 per share, while full-year revenue of $4.55 billion will rise 11% year over year.

As noted in previous posts, Zoom has been a victim of its own success. Currently generating around $1.5 billion in free cash flow, Zoom has grown its net margin from around 4% to north of 30% in the past two years. This rate of business improvement is counter to the reaction seen in the stock. The management team has done a solid job with profitability, raising the gross margin in each of the last several quarters. The company is also taking the necessary steps to ensure its post-pandemic future is sustainable.

That means it wants to show that its business is more than just a one-hit wonder as is currently perceived. In that vein, the option of Zoom Phone and Zoom Rooms, as well as its entry into the contact center space, will be critical. These new revenue streams will help offset the continued deceleration in the video conference business. In the fourth quarter the company reported earnings of $1.29 per share, rising 6% year over year. Q4 revenue rose 21% year over year to $1.07 billion.

For some context, in Q4 of 2021, revenue growth was 369%, while EPS of $1.22 grew 713%. Despite the top and bottom line beat, the glaring growth deceleration sent the stock lower some 20% after the company issued guidance that also showed a remarkable slowdown. Zoom’s guidance on Monday will be determine whether the stock can establish a floor and begin to rise.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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