Zoom Hits US$1 Billion in Quarterly Revenue - Shows Signs of Easing Growth

Zoom Video Communications Inc.’s quarterly revenue surpassed US$1 billion for the first time in the company’s history, though the strong demand for its videoconferencing services that made it ubiquitous during the pandemic is showing signs of easing as regular activities resume.

The roughly 54% increase in revenue, while slightly better than Wall Street expected, couldn’t match the huge growth that Zoom had in the year-earlier period, when revenue surged fourfold compared with the prior year as companies leaned more heavily into remote working.

While the company forecast revenue of more than $1 billion again in the current quarter, its adjusted earnings guidance came in lower than expected. And company officials said small businesses and consumers were starting to spend less as opportunities for in-person meetings and gatherings expand. Zoom officials said some metrics supercharged by the pandemic had begun to normalize as customers returned to “more thoughtful, measured buying-patterns.”

Zoom shares fell 12% in after-hours trading, after closing up 2% on Monday.

Research firm International Data Corp. projects that collaboration applications will become a roughly $51 billion market by 2025, nearly double 2020 levels.

Microsoft Corp. in its most recent earnings report said that usage of Teams, its group conferencing and collaboration software, had reached record levels with nearly 250 million monthly active users and nearly 80 million monthly active Teams Phones users, with total calls surpassing 1 billion in one month.

Zoom Phone, which the company sells as a telephone option for huddle rooms and executive offices, in August reached 2 million seats sold, and the number of Phone customers that generated more than $100,000 in revenue over the previous 12 months more than tripled from the comparable period a year earlier, company executives said.

As offices start to reopen, analysts are raising questions about Zoom’s ability to retain paying customers and sustain the kind of growth rate it has enjoyed during the pandemic.

On Monday, Zoom said it had about 504,900 customers with more than 10 employees, up from about 497,000 in the April quarter, and said about 2,278 customers generated more than $100,000 in revenue over the past 12 months, up from about 1,999 in the previous quarter.

Zoom has been adding features and services and in July agreed to buy cloud-based customer-service software provider Five9 Inc., in a deal that Zoom said would allow it to tap into a $24 billion contact-centre market.

“Today we are a global brand counting over half a million customers with more than 10 employees, which we believe positions us extremely well to support organizations and individuals as they look to reimagine work, communications, and collaboration,” Zoom founder and Chief Executive Eric S. Yuan said.

Zoom’s second-quarter profit rose to about $317 million from about $186 million a year earlier, while revenue reached $1.02 billion, up from $663.5 million a year ago.

The results beat Zoom’s and Wall Street projections, according to FactSet.

The California-based company said it now expects annual revenue to reach $4.01 billion to $4.02 billion, compared with its earlier view of $3.98 billion to $3.99 billion, and $4.75 to $4.79 a share in adjusted profit, compared with its previous range of $4.56 to $4.61 a share.

China’s economic recovery isn’t gaining the momentum money managers are awaiting.

Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.

Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.

And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.

Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.

Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.

Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.

She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.

“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.

“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”

Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.

The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.

Zoom Hits US$1 Billion in Quarterly Revenue – Shows Signs of Easing Growth

Company raises full-year guidance, reports more than half a million customers with more than 10 employees.