Zoom Video Communications (ZM) tumbled Tuesday after the company reported third-quarter earnings and revenue that edged by estimates amid elevated turnover of small business customers. Zoom stock sold off as some analysts focused on slowing billings growth.
Shares of Zoom Video tanked 14.7% in midday trading after the video-chat company warned investors of a revenue growth slowdown. This caused several Wall Street firms to cut price targets on the stock.
Zoom was one of the pandemic darlings, going from a relative niche business software segment to a household product. Millions of people used the company’s tech over the past nearly two years in order to keep up with school, work, or socializing. But growth is slowing as people return to work and school.
“It’s a little bit too much overblown in our view,” said James Fish, senior research analyst at Piper Sandler. The analyst has a $299 price target on the stock.
“Just look at Enterprise, which grew 65% on its own, and Commercial Fees, which are still growing at a nice clip. You’re really left with an interesting valuation,” said Fish.
The company is also seeing growth in its Zoom Rooms software. As companies and other organizations equip their conference rooms to hold meetings with participants who are not physically on-site.
“The conference room strategy has become even more important than it was pre-pandemic,” Kelly Steckelberg, Zoom’s chief financial officer, said in an earnings call after the results were released.
Zoom’s revenue jumped 35% year over year to $1.05 billion in its fiscal 2022 third quarter. That marked a significant deceleration from the 54% growth the video-chat company experienced in the second quarter. The staggering 367% growth it delivered in the third quarter of 2021.
To offset the slowdown, Zoom has placed a point of emphasis on expanding its relationships with larger companies. Some tools such as its Zoom Rooms video conference room solutions make it easier for onsite and offsite employees to communicate.
Zoom had 2,507 customers contributing more than $100,000 in trailing-12-month revenue at the end of the third quarter. That was up 94% from the year-ago period. These dynamics can also be seen in its net dollar expansion rate in customers with more than 10 employees, which checked in above 130% for the 11th straight quarter.
All told, Zoom’s adjusted net income increased 14% to $338.4 million, or $1.11 per share.
During its third quarter, Zoom (ZM) said it had 2,507 customers that each contributed more than $100,000 in the trailing 12 months of revenue. An increase of about 94% from the same quarter last year. Zoom had approximately 512,100 customers with more than 10 employees, which was about 18% more than the year-ago quarter.
