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It has been about a month since the last earnings report for Zoom Video Communications (ZM). Shares have lost about 12.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zoom Video due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zoom Video Q3 Earnings Top Estimates, Revenues Jump Y/Y
Zoom’s third-quarter fiscal 2021 adjusted earnings of 99 cents per share beat the Zacks Consensus Estimate by 32%. The company had reported earnings of 9 cents per share in the year-ago quarter.
Moreover, revenues of $695 million surpassed the consensus mark by 11.8% and also soared 366.5% year over year. This outperformance was primarily driven by new customer subscriptions, which accounted for approximately 81% of growth. Existing customer subscriptions represented roughly 19% of the year-over-year growth.
Revenues from Americas (69.3% of revenues) jumped 302.2% year over year to $538.5 million. EMEA (17.4% of revenues) soared a whopping 607.9% from the year-ago quarter to $135.2 million. APAC (13.3% of revenues) were $103.5 million, up a massive 655.5% year over year.
User Base Jumps in Q3
Zoom continued to benefit from the coronavirus-induced work-from-home and online-learning wave, similar to its competitors Cisco and Microsoft.
At the end of fiscal third quarter, Zoom had roughly 433,700 customers (with more than 10 employees), up 485% year over year. Markedly, Zoom’s trailing 12-month net dollar-expansion rate in customers with more than 10 employees was above 130% for the 10th consecutive quarter.
Moreover, the company had 1,289 customers with more than $100,000 in trailing 12-month revenues up 136% year over year. Peloton and Rakuten were notable enterprise customer additions in the reported quarter.
Non-GAAP gross margin in the quarter under review was 68.2%, significantly down from 81.7% reported in the year-ago quarter. The fall was attributed to higher number of free users and continued higher utilization of public cloud services.
Research & development (R&D) expenses as a percentage of revenues decreased 510 basis points (bps) on a year-over-year basis to 3.2%. Further, general & administrative (G&A) expenses decreased 290 bps to 9.4%.
Moreover, sales & marketing (S&M) expenses as a percentage of revenues were 18.2%, significantly down from 49.5% reported in the year-ago quarter.
Non-GAAP operating income surged to $290.8 million from $21.3 million reported in the year-ago quarter. Operating margin expanded to 37.4% from 12.8% reported in the year-ago quarter.
Balance Sheet & Cash Flow
As of Oct 31, 2020, cash and cash equivalents and marketable securities were $1.87 billion compared with $1.48 billion as of Jul 31, 2020.
Free cash flow was $388.2 million in the quarter under review compared with $373.4 million in the previous quarter and $54.7 million in the year-ago quarter.
Remaining Performance Obligation (“RPO”) was $1.42 billion, up 215.5% year over year. The company expects to recognize nearly 72% or $1.2 billion of the total RPO as revenues over the next 12 months.
For fourth-quarter fiscal 2021, Zoom expects revenues between $806 million and $811 million. Non-GAAP income from operations is expected between $243 million and $248 million. Moreover, non-GAAP earnings are expected in the 77-79 cents-per-share range.
For the full fiscal, Zoom now expects revenues between $2.575 billion and $2.580 billion (up from the previous revenue guidance of $2.37- $2.39 billion).
Non-GAAP income from operations is expected between $865 million and $870 million (up from the past outlook of $730-$750 million). Moreover, non-GAAP earnings are expected in the $2.85-$2.87 per-share range (up from previous outlook of $2.40-$2.47 per share).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 13.86% due to these changes.
Currently, Zoom Video has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zoom Video has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
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