Zoom Video Communications (ZM) stock skyrockets 41% on unprecedented Q2 results

As the remote work culture gathered momentum during the pandemic, organizations moved beyond addressing immediate business-continuity needs to actively redefine and embrace new approaches to support the transition to work, learn & connect anywhere. This helped in the meaningful adoption of Zoom Video Communications’ (NASDAQ: ZM) video-first unified communications platform across industries and geographies. Zoom reported its second quarter 2021 results yesterday after the bell.

Strong Q2 results

Zoom’s profit and revenue in Q2 crushed the analysts’ targets. Adjusted EPS rose to $0.92 and GAAP EPS climbed to $0.63 in Q2. Revenue surged 355% year-over-year to $663.5 million in Q2. This top line result significantly exceeded the high-end of the guidance range of $495 million to $500 million as demand remained at heightened levels, combined with lower-than-expected churn.

For the quarter, the year-over-year growth in revenue was primarily due to subscriptions provided to new customers, which accounted for approximately 81% of the increase, while subscriptions provided to existing customers accounted for approximately 19% of the increase. This demand was broad-based across industry verticals, geographies and customer cohorts.

Customers

Zoom has continued to benefit from significant growth in the customer segment with 10 or fewer employees, as small businesses and individuals adopted and maintained their Zoom licenses for various uses during the pandemic.

While better-than-expected churn was one of the drivers of Q2 performance, Zoom experienced a significantly higher level of overall churn in Q2 as compared to historical rates.

Geographic expansion

In Q2, Americas region grew at a rate of 288% year-over-year. Zoom’s combined APAC and EMEA revenue accelerated 629% year-over-year and represented approximately 31% of Q2 revenue. The company plans to continue to invest in international expansion to capitalize on the brand awareness and the increased global opportunity.

In August, the company expanded the availability of Zoom Phone service to 25 additional countries and territories. Zoom now provides local telephone service and domestic calling in more than 40 countries and territories.

Looking ahead

Zoom expects operating margins to decrease from the peak in Q2 over the balance of this year and views margins to normalize to lower levels over the next several quarters. Revenue for the back half of the year is expected to be effectively consistent with Q2. This implies that Q3 and Q4 revenue will be only modestly higher than Q2, indicating a decline in quarter-over-quarter growth.

Zoom expects revenue to grow to over $2 billion in this fiscal year, which would be an impressive figure, considering its revenue guidance of below $1 billion at the start of the fiscal year.

Also read: Zoom Q2 2021 Earnings Call Transcript

During the Q&A session of the Q2 earnings call, CEO Eric Yuan stated that the company is going to double down on its privacy and security efforts.

Zoom ran campaigns and reached out to customers to convert from paying monthly to annual in Q2 and continues to focus on this. The company expects more customers to upgrade moving into Q3.

On the expense side, Zoom estimates sales and marketing expenses to increase through the back half of the year.

After pandemic

Zoom believes the work from home culture would stay even after the world returns to normalcy. The company believes that it can optimize the future workplace since it had planned well for the next 10 to 12 months.

Stock Zooms

After reporting stellar second quarter 2021 results yesterday, shares of Zoom have jumped 41% today. ZOOM stock reached an all-time high ($478.00) during today’s regular trading session.

If you had invested $10,000 ($10,008 for 278 shares at $36 a share) during Zoom’s IPO, it would have now grown to $1,27,000. From its IPO price of $36 in April 2019, ZOOM has surged to $457.69, with year-to-date growth of 573%.