Key takeaways from Zoom Video Communications’ (ZM) Q2 earnings

Zoom Video Communications (NASDAQ: ZM) reported positive results for the second quarter of 2024 even as the video conferencing site keeps innovating and ramping up the platform with advanced AI features, a strategy the management intends to continue.

The company witnessed a surge in revenues during the pandemic as widespread movement restrictions made people switch to online conferencing, but the momentum waned once markets started reopening and people returned to offices. After withdrawing from its peak about three years ago, Zoom’s stock has been struggling to regain the lost momentum. It has lost about 18% since the beginning of 2023.

Strategy

While a rebound is very much in the cards, it seems the time is not ripe to invest in the business which is yet to fully recover from the post-COVID slowdown. The management is taking important measures to ensure user privacy, which would attract more customers to the platform. Another growth strategy is to expand into new markets like Asia Pacific.  

The company’s past earnings performance has been quite impressive, in comparison with analysts’ estimates. The bottom line beat estimates in every quarter since Zoom went public about four years ago. In the second quarter, earnings topped the Street view by an impressive 28 cents – at $1.34 per share, adjusted profit was up 28%. Revenues rose 4% from last year to $1.14 billion and topped expectations.

Customer Base

Zoom added around 2,200 new enterprise customers during the three-month period, representing a 1% sequential increase. After recording strong cash flows in recent quarters, the company has raised its full-year free cash flow target to the range of $1.2 billion to $1.23 billion, mainly to reflect the strength in profitability and collections.

“Zoom is purpose-built for hybrid work, and it is on us to understand what our customers are experiencing in their hybrid journeys and what works and does not work for them. We believe that this approach will enable us to continue to innovate for our customers and deliver what they need to succeed. Now, moving on to some of our customer wins. First, we are very excited to expand with the United States Postal Service. In Q2, the postal service added Zoom Team Chat for 21,500 users to their existing Zoom for Government deployment,” Zoom’s CEO Eric Yuan said during his post-earnings interaction with analysts.

Outlook

For the third quarter of 2024, the company expects adjusted earnings per share to be in the range of $1.07 to $1.09 and revenues to be around $1.12 billion. The guidance for fiscal 2024 revenue is about $4.49 billion, while full-year adjusted profit is expected to be between $4.63 per share and $4.67 per share.

Shares of Zoom Video traded lower in the early hours of Friday’s session. It has traded below the 52-week average in recent weeks.