A month has gone by since the last earnings report for Zoom Video Communications (ZM). Shares have added about 5.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zoom Video due for a pullback? 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 Q2 Earnings Beat, Customer Growth Drives Revenues
Zoom’s second-quarter fiscal 2024 adjusted earnings of $1.34 per share beat the Zacks Consensus Estimate by 27.62% and increased 27.6% year over year.
Revenues of $1.13 billion beat the consensus mark by 2.29% and increased 3.6% year over year on strong growth from enterprise customers.
Revenues from Enterprise customers grew 10.2% year over year to $659.5 million and represented 58% of total revenues, up from 54% in the prior-year quarter. Customers contributing more than $100,000 in revenues in the trailing 12 months grew 17.8% to 3,672. These customers accounted for 29% of revenues, up from 26% in the year-ago quarter.
The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 109%.
The number of Enterprise customers grew 7% year over year to more than 218,100.
Zoom Contact Center product surpassed 500 customers as the company has been rolling out about 90 new features and enhancements per quarter. In early July, the company launched Workforce Management to help customers streamline customer communications, manage agent needs and transform their customer experience all from a single and unified platform.
In the second quarter, the U.S. Postal Service added Zoom Team Chat for 21,500 users to its existing Zoom for government deployment.
Revenues increased 5.9% in America, while international market revenues from APAC and EMEA decreased 2.7% and 1.1% year over year, respectively.
Non-GAAP Operating Details
Gross margin expanded 140 basis points (bps) to 80.3% in the fiscal second quarter of 2024.
Research and development expenses increased 6.5% year over year to $104.1 million. Sales and marketing expenses decreased 3.4% to $275.9 million, while general and administrative expenses decreased 19% to $73.1 million.
Operating income increased 17.3% to $461.7 million year over year. Operating margin expanded 470 bps to 40.5%.
Total cash, cash equivalents and marketable securities as of Jul 31, 2023, were $6 billion. As of Apr 30, 2023, cash, cash equivalents and marketable securities were $5.6 billion.
Free cash flow as of Jul 31, 2023, was $289.4 million. As of Apr 30, 2023, adjusted free cash flow was $396.7 million.
Zoom expects third-quarter fiscal 2024 revenues in the range of $1.115 billion to $1.120 billion.
Non-GAAP earnings per share are expected in the range of $1.07 to $1.09.
For fiscal 2024, Zoom expects revenues in the range of $4.485-$4.495 billion.
Non-GAAP earnings per share are expected in the range of $4.63 to $4.67.
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 26.85% due to these changes.
Currently, Zoom Video has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zoom Video has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Zoom Video belongs to the Zacks Internet - Software industry. Another stock from the same industry, Palo Alto Networks (PANW), has gained 0.7% over the past month. More than a month has passed since the company reported results for the quarter ended July 2023.
Palo Alto reported revenues of $1.95 billion in the last reported quarter, representing a year-over-year change of +26%. EPS of $1.44 for the same period compares with $0.80 a year ago.
Palo Alto is expected to post earnings of $1.16 per share for the current quarter, representing a year-over-year change of +39.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +20.7%.
Palo Alto has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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