Zoom’s Growth Is Slowing. Investors Are Getting Nervous.
Zoom Video Communications continued its run of fantastic Covid-19 driven growth, reporting better-than-expected results for its fiscal first quarter ended April 30. But the quarter provided clear evidence that even for Zoom—the most obvious beneficiary of the pandemic era shift to working, learning, and playing from home—hypergrowth can’t last forever.
For the quarter, reported late Tuesday, Zoom (ticker: ZM) posted revenue of $956.2 million, up 191% from a year ago, and ahead of both the company’s guidance range of $900 million to $905 million and the Street consensus estimate of $906 million. Growth in each of the past three quarters was above 355%—making this a rare case where nearly 200% growth represents a considerable slowdown.
But as we pointed out yesterday, the margin by which the company beat guidance has been shrinking—it was 6% above the guidance range in the April quarter, after a 9% beat last quarter, a 13% beat two quarters back, and mid-pandemic beats of 33% and 61%. In other words, the margin of outperformance narrowed for the fourth quarter in a row.
Zoom lifted its guidance for the January 2022 fiscal year. The new range of $3.975 billion to $3.99 billion points to growth of just over 50%. That is impressive growth by most measures, but the Zoom boom days are clearly over. Asked about what normalized growth might look like, Zoom CFO Kelly Steckelberg told Barron’s that she expects to see “growth more consistent with companies at this scale.” Street estimates call for growth in fiscal 2023 of just under 20%.
Steckelberg says the challenge for Zoom from here is to shift from simply being an app to being a platform. Zoom told investors on their postearnings conference call yesterday that it now has 1.5 million Zoom Phone users, up from 1 million in January, as it continues to roll out the service, which competes with RingCentral (RNG) and others in the market for cloud-based telephone systems.
The CEO notes that the company is on track for a summer launch for the previously announced Zoom Apps store, which will include software from third parties that can include or enhance Zoom’s core conferencing experience. Last month, the company announced Zoom Events, software to hold virtual events; the platform will fold in OnZoom, a website launched last year to promote online events.
J.P. Morgan analyst Sterling Auty this morning repeated his Neutral rating on Zoom shares, while slashing his price target to $385 from $456.