8/23/2022: Zoom Reported Earnings
Earnings and outlook are not great. But $ZM stock presents good value in the long run.
Zoom ($ZM) reported earnings yesterday after market close. It’s not great. Revenue was $1.1B vs. $1.12B expected for the quarter ending 7/31/2022, a mere 8% growth YoY. EPS is $1.05 vs $0.94 expected but net income fell to $45.7M vs. $316.9M the year-ago. quarter due to increased spending in sales and marketing.
The company also lowered sales forecast to ~$4.4 billion from its May projection of ~$4.55 billion. About $115 million of the cut is due to the “broader economic environment” and $35 million is due to the stronger US dollar according to their CFO.
I love Zoom as a product but it’s currently experiencing a business spending slowdown , increased competition from Microsoft Teams and the COVID hangover. Simply put, most of their growth already happened during COVID. They could keep pushing for larger enterprise clients or new products like customer service solutions. But they are already a $4B-revenue a year SaaS business so the growth ahead would be hard. I did a quick research and there are actually not that many SaaS companies that generate 4B+ of B2B SaaS revenue per year. In fact there are only 9 public B2B SaaS companies that generate $4B+ annual revenue in the USA: Microsoft, Salesforce, Shopify, Adobe, Zoom, AutoDesk, ServiceNow, Workday, and Intuit. (Companies like Palo Alto Networks, Oracle, Cisco, Square, Amazon AWS, and Google Cloud do generate $4B+ B2B revenue a year but they are not pure SaaS.) Zoom’s $4B+ B2B SaaS annual revenue is no small feat.
What I am trying to say is that Zoom is already a very large and well-established business. Their growth has slowed but they are generating $4B+ of subscription revenue and $1.5B of cash flow with enterprise value <$20B after today’s dip. I believe ZM 0.00 stock is a good value. Video conferencing is actually really hard and their product has the best video quality and usability. If they could take advantage of this product moat and expand to other markets, it would be a big plus. Their leadership is still young and energetic so I am sure they can figure something out. At the same time, I might take advantage of the temporary mis-pricing of ZM 0.00 and buy some shares.