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Zoom Beats Sales Estimates as Company’s Business Improves

(Bloomberg) — Zoom Video Communications Inc. reported better-than-expected revenue on strong enterprise sales, a sign the company is holding its own in a competitive business collaboration software market.

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Third-quarter sales rose 3.2% to about $1.14 billion, the company said in a statement Monday. Analysts estimate it on average at $1.12 billion, according to data compiled by Bloomberg. Earnings, excluding certain items, came to $1.29 per share, compared with an average estimate of $1.10 per share.

The company, whose iconic video software has become the essential communications tool for Americans confined to their homes during the pandemic, has turned its attention to professional customers. Zoom has added features for those customers, including word processing, and has ramped up the use of artificial intelligence to bolster its main video conferencing service, which competes fiercely with Microsoft Corp.’s Teams product.

Enterprise revenue from 219,700 customers rose 7.5% to $661 million in the quarter ended Oct. 31, beating analysts’ average estimate. Zoom said it had 3,731 customers contributing more than $100,000 in revenue over the trailing 12 months, an increase of nearly 14% from the year-ago period.

“We’ve strengthened Zoom’s all-in-one intelligent collaboration platform with new advanced features like Zoom AI Companion and continued to evolve our customer and employee engagement solutions,” said CEO Eric Yuan in the press release.

The results “are encouraging for us in a context where the company must offset the slowdown in its consumer unit with higher sales to professional customers,” wrote John Butler, an analyst at Bloomberg Intelligence, adding that the focus on Focus on increasing profitability also “seems clearly on the right track”. .“

Nevertheless, revenue forecasts for the current quarter are between $1.125 billion and $1.13 billion, which is slightly lower than analyst estimates. Earnings, excluding certain items, will be about $1.14 per share for the period ending in January, compared with an average estimate of $1.09.

The forecasts “were more mixed” than those for the reported quarter, wrote Tyler Radke, an analyst at Citigroup Inc.. But the results overall were “a little stronger than expected.” Before the results were released, he wrote that “Zoom still faces significant risks, some arguably existential, with looming competition from Microsoft and lack of peak pricing and margins.”

Shares gained about 1% in extended trading after closing at $66 in New York. Zoom missed out on this year’s AI-fueled tech rally, with the stock falling 2.6% through Monday’s close.

A post-pandemic exodus of casual and small business customers from Zoom has worried investors over the past year. These users generally have a higher margin because they do not need interaction with sellers. Yuan highlighted “higher retention” and the use of new AI features among these online customers. Zoom, on average, lost 3% of these customers each month during the quarter, marking the slowest churn rate the company has ever reported.

“Over time, you should see retention continue to improve,” CFO Kelly Steckelberg said of churn during a conference call after the results were released.

Zoom Phone, one of the company’s biggest side bets, reached 7 million paying users during the quarter, Steckelberg said. Its contact center product has reached 700 customers, she added. Sales declined outside the Americas during the quarter, Steckelberg said, with European and Asian regions down 2%. Sales in the Americas increased by 5%.

(Updates with analyst comments beginning in seventh paragraph.)

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