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Zoom Jumps Most in a Year on Strong Profit Outlook, Buyback

Zoom Jumps Most in a Year on Strong Profit Outlook, Buyback

(Bloomberg) -- Zoom Video Communications Inc. gained the most intraday in a year after its quarterly profit and outlook suggested corporate customers are sticking with the software company and its new products may begin to revitalize sales.

Most Read from Bloomberg

The company also announced a $1.5 billion share buyback, which followed a $1 billion authorization started in 2022 that expired this month.

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Zoom projected profit, excluding some items, of $4.85 to $4.88 a share in the fiscal year ending in January 2025. Analysts, on average, estimated $4.72. In the fiscal fourth quarter, earnings were $1.42 a share, compared with the average estimate of $1.15.

“The outlook was generally ahead of our expectations (mixed vs. Street) but featured better profitability across the board,” Tyler Radke, an analyst at Citigroup Inc., wrote Monday in a note after the results were released. “All-in, Q4 results look better than feared.”

The shares rose 6.7% to $67.37 at 12:51 p.m. Tuesday in New York, after jumping as much as 10%, the biggest intraday increase since February 2023. The San Jose, California-based company’s stock had declined 15% over the past 12 months through Monday’s close, missing the market rally that fueled many technology companies.

The new buyback is likely to be the biggest area of focus for investors, as it “answers one element of uncertainty” around how Zoom will use its stockpile of cash, Michael Turrin, an analyst at Wells Fargo, said in an interview Monday on Bloomberg Television. The move likely pushes back on the potential of a large acquisition, he added.

After hyper-growth during the pandemic, Zoom has experienced a dramatic sales slowdown amid competition for business customers from Microsoft Corp. and the departure of consumers from the videoconferencing platform. In the hopes of capturing more corporate clients, Zoom has expanded its product line to include phone systems, call centers and AI assistants.

“Our team is dedicated to platform-wide innovation, introducing hundreds of new features, including those for Zoom Contact Center, which redefine the gold standard for customer experience,” Chief Executive Officer Eric Yuan said in the statement.

Contact center licenses about tripled over the last year, and 95 phone customers had more than 10,000 active users, Zoom said in an earnings presentation. About half a million accounts enabled Zoom’s AI free companion, the company added.

What Bloomberg Intelligence Says

Improvement should take place in 2H as products such as Zoom Phone and Contact Center add more to sales. Both new offerings are evolving rapidly, which bodes well for continuing growth in fiscal 2025.

— John Butler, senior industry analyst, and Hunter Sacco, associate analyst

Click here to see the research

Sales gained 2.6% to $1.15 billion in the period ended Jan. 31, the company said in a statement. Analysts, on average, estimated $1.13 billion, according to data compiled by Bloomberg. Zoom projected fiscal-year revenue of about $4.6 billion, compared with analysts’ average estimate of $4.66 billion.

Enterprise revenue increased 4.9% to $667.3 million. Zoom said it had 220,400 corporate customers at the end of the quarter, with 3,810 contributing more than $100,000 in trailing 12-month revenue.

Online sales, generally from casual consumers and small business, decreased 0.5% to $479.2 million. Zoom, on average, lost 3% of those customers each month in the quarter, matching its metric for the previous period, which was the slowest rate of churn the company had ever reported.

The buyback amount still allows “flexibility to consider M&A options to accelerate growth and deliver for our customers,” Chief Financial Officer Kelly Steckelberg said during a conference call with analysts after the results were released.

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