Zoom Video Gains After Raising Full-Year Forecast

Zoom Video Communications (NASDAQ:) shares rose in early Tuesday trade after the company boosted its revenue guidance for the full year, pushing it above the average analyst estimate.

The results were generally better than feared as investors had concerns that a difficult macro environment will weigh again on Zoom’s quarterly results. Still, the bulls didn’t get a proper catalyst that would help shares re-rate higher as investors likely await a more favorable intersection of revenue acceleration before stepping in from the sidelines.

How Did Zoom Video Perform in the Second Quarter

Zoom posted an adjusted EPS of $1.34, easily ahead of the consensus of $1.05. Revenue was up 3.6% year-over-year to $1.14 billion, again topping the average analyst estimate of $1.11 billion.

The video communications business said its biggest business unit – Enterprise – saw its sales rise over 10% YoY to $659.5 million. On the other hand, revenue in the Online segment was down 4.3% YoY to $479.2 million.

“Our mission of delivering limitless human connection remains core as we continue to innovate and expand our platform to help bring value and enhanced productivity to our customers with new AI features like Zoom IQ Meeting Summary and Team Chat Compose, as well as Intelligent Director,” said Eric S. Yuan, Zoom Founder, and CEO.

Yuan attributed the robust EPS upside to “strong operating discipline,” after Zoom cut 1300 employees, or 15% of its workforce, back in February this year. This helped the company to grow its operating cash flow by 31% YoY to $336 million in Q2. This was a common trend in the tech sector, as the tech industry accounted for 28% of all layoffs in the month of February, resulting in 21,387 jobs being cut.

Zoom said it generated non-GAAP income from operations for the second quarter of $461.7 million, yielding a non-GAAP operating margin of 40.5%. Non-GAAP gross margin was 80.3%, rising from 78.9% in the second quarter of the last year.

A solid Q2 performance was possible due to a rising number of Enterprise customers – up 6.9% YoY to 218,100. 3,672 customers contributed more than $100,000 in trailing 12 months’ revenue, up nearly 18% from the same quarter last fiscal year, the company added.

Along these lines, Zoom was able to offer a solid forecast as well. For this quarter, the company sees revenue between $1.115 billion and $1.120 billion, which compares to the average analyst estimate of $1.12 billion.

For FY24, Zoom now sees revenue between $4.485 billion and $4.495 billion, up from the prior forecast of $4.47-4.49 billion. On the bottom line, the company sees adjusted EPS in the range of $4.63-4.67, up from the prior $4.25-4.31. Analysts were looking for adjusted EPS of $4.32 on revenue of $4.48 billion.

Zoom also said it expects its non-GAAP gross margin to fall to 79.7% as the company continues to invest in new AI tech.

Zoom Video Gets a Boost on its AI Journey

Back in June, Zoom said it hired Xuedong Huang as the new Chief Technology Officer. He will be in charge of driving new technologies and products from AI to AR.

“I love the new challenge and Zoom’s mission for connecting the world. I am proud of joining Zoom’s amazing senior leadership team,” Huang said in a blog post on LinkedIn.

Huang joined Zoom from Microsoft (NASDAQ:), where he spent 30 years. Most recently, he acted as Azure AI CTO and Technical Fellow. According to his biography, he “led Microsoft’s AI teams to achieve several of the industry’s first human parity milestones in speech recognition, machine translation, natural language understanding, and computer vision.”

Zoom’s CEO Yuan highlighted the new addition in his first sentence on the earnings call by noting that “Dr. XD joins us at an optimal moment in our AI journey.” Like many other tech companies in 2023, Zoom brought several new AI innovations to the market and announced an aggressive roadmap.

For instance, the company launched Zoom Scheduler to help users enhance meeting planning. The basic idea behind this AI-led product is to “reduce the time and hassle of appointment scheduling with people outside your organization through seamless integration with the Zoom platform,” according to a blog post.

Similarly, Zoom launched Zoom Clips, which allows users to record, edit, and share high-fidelity short-form video messages, both internally and externally. Elsewhere, Zoom has big expectations from the Team Chat product, which allows users to streamline communications between team members and external Zoom users.

According to Yuan, the company has “two Fortune 15 companies, one major consulting firm, a global F&B brand, and a leading law firm using Zoom Team Chat as a core means of text-based communications.”

The AI portfolio was also strengthened by the addition of Zoom Virtual Agent, the company’s own AI chatbot, which provides quick and personalized support by leveraging the latest generative AI technology.

Zoom continues to attract major customers and it specifically mentioned USPS, Brookdale (NYSE:), Perdue Farms, Valmont (NYSE:), and Dollar General (NYSE:) as some of its large customers. For instance, Dollar General uses Zoom’s Workvivo platform to improve the connection between its roughly 190,000 employees.

Summary

Zoom Video shares rose modestly on Tuesday after the company raised its full-year outlook on the back of the better-than-expected Q2 performance. The company is staging a major business turnaround as it attempts to move away from providing just videoconferencing services and become a more comprehensive communications platform.

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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.