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Zoom’s stock dips despite strong quarterly results and optimistic outlook

Zoom’s stock dips despite strong quarterly results and optimistic outlook

Eric Yuan, founder and CEO of Zoom Communications Inc., spoke about the company's ongoing transformation at the annual Concordia Summit held in New York on September 25, 2024. The video conferencing giant, formerly known as Zoom Video Communications, reported solid financial results for its fiscal third quarter, but its shares fell 4% in extended trading on Monday amid mixed investor sentiment regarding its future guidance.

Zoom posted results that beat Wall Street's expectations, showing steady growth in an evolving market for its services. According to LSEG financials, the company outperformed analysts' projections in both earnings per share and revenue. Adjusted earnings per share came in at $1.38, above the expected $1.31, while quarterly revenue reached $1.18 billion, above the expected $1.16 billion.

The company reported a 4% year-over-year revenue increase for the quarter ended Oct. 31. While this marked continued single-digit growth over the past two and a half years, it represents a stark contrast to the explosive expansion experienced by Zoom. during the height of the COVID-19 pandemic in 2020 and 2021, when its revenue tripled as remote work and virtual communication tools became essential.

Net income for the quarter rose to $207.1 million, or 66 cents per share, from $141.2 million, or 45 cents per share, in the same period last year. The company also saw steady growth in its enterprise customer base, adding 800 new enterprise accounts to reach a total of 192,400 enterprise customers.

Looking ahead, Zoom provided guidance for its fiscal fourth quarter, forecasting adjusted earnings per share of $1.29 to $1.30, with expected revenue of $1.175 billion to $1.180 billion. Analysts had expected $1.29 per share and $1.17 billion in revenue, meaning the company's outlook was slightly ahead of expectations. For full-year fiscal 2025, Zoom raised its forecast, forecasting adjusted earnings per share of $5.41 to $5.43 on revenue of $4.656 to $4.661 billion, representing an expected growth rate of about 3%. This is an improvement from the previous forecast of $5.29 to $5.32 per share on revenue of $4.63 to $4.64 billion.

Eric Yuan highlighted the company's strategic moves to diversify its offerings and adapt to a rapidly evolving technology landscape. During the quarter, Zoom announced plans to release a premium Custom AI Companion in the first half of 2025. This AI tool will integrate with enterprise platforms such as ServiceNow and Workday, offering organizations advanced collaboration and productivity capabilities. Additionally, the company has introduced single-use webinar options designed to host events with up to one million attendees, in an effort to expand its appeal to large-scale audiences and businesses.

Zoom's rebranding, which includes shortening the corporate name to Zoom Communications Inc., highlights the company's broader ambitions. Yuan explained that the change reflects Zoom's evolution into a comprehensive AI-powered workplace platform aimed at promoting human connection and driving long-term growth. “This rebranding is a significant step in our journey to become a leader in the future AI-powered workplace,” Yuan said on a call with analysts.

Despite these developments, investors appeared cautious. Zoom's shares, which have risen about 24% this year, fell 4% in after-hours trading, even as the broader S&P 500 index gained 25% in the same period. The company's steady but modest revenue growth contrasts with the exponential gains it posted during the pandemic's heyday, raising questions about its ability to sustain momentum in a competitive market.

Zoom's ability to innovate and expand its offerings remains central to its strategy as it faces the challenges of a post-pandemic world. By integrating artificial intelligence and offering scalable solutions for businesses, the company positions itself as more than just a video conferencing provider. However, the pressure to deliver steady growth in a slower market environment continues to weigh on investor confidence.

As Zoom advances on its mission to redefine the future of work, all eyes will be on its ability to realize its vision and deliver on its promises, particularly as it launches new AI-powered features and services next year. It remains to be seen whether this transformation will be enough to reignite market enthusiasm.

By Charles Halloway

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