Zoom’s (NASDAQ:ZM) Q2 Sales Beat Estimates, Guidance Also Solid
Video conferencing platform Zoom (NASDAQ:ZM) beat analysts’ expectations in Q2 CY2024, with revenue up 2.1% year on year to $1.16 billion. The company expects next quarter’s revenue to be around $1.16 billion, in line with analysts’ estimates. It made a non-GAAP profit of $1.39 per share, improving from its profit of $1.34 per share in the same quarter last year.
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Zoom (ZM) Q2 CY2024 Highlights:
- Revenue: $1.16 billion vs analyst estimates of $1.15 billion (1.1% beat)
- Adjusted Operating Income: $455.5 million vs analyst estimates of $419.4 million (8.6% beat)
- EPS (non-GAAP): $1.39 vs analyst estimates of $1.22 (14.2% beat)
- The company slightly lifted its revenue guidance for the full year to $4.64 billion at the midpoint from $4.62 billion
- EPS (non-GAAP) guidance for the full year is $5.31 at the midpoint, beating analyst estimates by 4.8%
- Gross Margin (GAAP): 75.5%, down from 76.6% in the same quarter last year
- Free Cash Flow Margin: 31.4%, down from 49.9% in the previous quarter
- Net Revenue Retention Rate: 98%, down from 102% in the previous quarter
- Customers: 3,933 customers paying more than $100,000 annually
- Market Capitalization: $18.29 billion
“In Q2, we outperformed our guidance across the board and grew operating cash flow and free cash flow by 33.7% and 26.2% year over year, respectively, demonstrating our continued commitment to efficient growth. We also saw strength in large accounts, with customers contributing more than $100,000 in trailing 12 months revenue increasing by 7.1% year over year, and resilience in our Online business, with Online average monthly churn reaching its lowest ever rate,” said Eric S. Yuan, Zoom founder, and CEO.
Started by Eric Yuan who once ran engineering for Cisco’s video conferencing business, Zoom (NASDAQ:ZM) offers an easy to use, cloud-based platform for video conferencing, audio conferencing and screen sharing.
Video Conferencing
Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
Sales Growth
As you can see below, Zoom’s 8% annualized revenue growth over the last three years has been weak, and its sales came in at $1.16 billion this quarter.
Zoom’s quarterly revenue was only up 2.1% year on year, which might disappoint some shareholders. However, its revenue increased $21.29 million quarter on quarter, a strong improvement from the $5.22 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter’s guidance suggests that Zoom is expecting revenue to grow 2.3% year on year to $1.16 billion, slowing down from the 3.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 2.2% over the next 12 months before the earnings results announcement.
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Large Customers Growth
This quarter, Zoom reported 3,933 enterprise customers paying more than $100,000 annually, an increase of 50 from the previous quarter. That’s a bit fewer contract wins than last quarter and quite a bit below what we’ve typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.
Key Takeaways from Zoom’s Q2 Results
It was encouraging to see Zoom narrowly top analysts’ revenue and adjusted operating income expectations this quarter. That the company raised full year revenue guidance as well means the demand environment is healthy. This is especially comforting given some uneven macro commentary from other software companies reporting earnings. Overall, this was a solid quarter. The stock traded up 2.9% to $62.02 immediately after reporting.
So should you invest in Zoom right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
