Zoom Video (ZM) will continue to face a harsh spotlight over the coming months

Shares of Zoom Video Communications Inc. (NASDAQ: ZM) plummeted 16% on Tuesday despite the company reporting strong results for the second quarter of 2022 a day ago. Although Zoom managed to tick all the boxes with regards to all its metrics, the Street was not impressed with the slowdown in growth or the flat guidance.

The bright side

Revenue grew 54% year-over-year to $1.02 billion, surpassing the company’s guidance and analysts’ projections and marking Zoom’s first billion dollar plus quarter. The company’s direct and channel businesses grew at twice the rate of its online business and it recorded strong performances from Zoom Phone and Zoom Rooms.

Adjusted EPS rose 48% to $1.36 versus the year-ago quarter, also beating estimates. Free cash flow increased 22% to $455 million while cash, cash equivalents and marketable securities at the end of the quarter stood at $5.1 billion.

In Q2, approx. 74% of incremental revenue came from new customers while 26% came from existing customers. The company saw a YoY growth of 77% in the number of enterprise customers spending more than $1 million in annual recurring revenue.

At the end of Q2, Zoom had 2,278 customers yielding more than $100,000 in trailing 12-months revenue, reflecting a growth of 131% YoY. The number of customers with more than 10 employees stood at approx. 504,900, up 36% YoY and comprising 64% of revenue. The net dollar expansion rate for customers with more than 10 employees was above 130% once again.

The number of customers spending more than $100,000 in ARR on Zoom Phone increased by 241% YoY. The company has a total of 26 Zoom Phone customers with more than 10,000 seats as of 1H22.

Zoom saw strong growth in both domestic and international markets. Revenue in the Americas grew 50% YoY while APAC and EMEA revenue grew 62% on a combined basis.

The dampener

The revenue growth rate of 54% in Q2 2022 was much slower than the 191% growth seen in Q1 2022 and the 355% growth recorded in Q2 2021. The 36% growth in customers with over 10 employees was also lower than the 87% increase in Q1 and the 458% jump in Q2 2021.

With the reopening of offices and communities, people are venturing out more for work and social events and the need for virtual meetings is reducing. This has raised concerns on the growth prospects of Zoom. The company’s lacklustre guidance did not help its case.

For the third quarter of 2022, Zoom expects revenue of $1.01-1.02 billion, which reflects little change from the second quarter. The outlook for adjusted EPS of $1.07-1.08 also fell below analysts’ estimates of $1.09.

Despite the concerns surrounding the stock, some experts believe that Zoom will continue to see a steady level of growth going forward as trends such as hybrid work and virtual get-togethers are not going to completely disappear. However, in the short term, Zoom will have to face some tough scrutiny.

Click here to read the full transcript of Zoom’s Q2 2022 earnings conference call