Zoom beats on earnings and hikes annual profit forecast, but fourth-quarter guidance disappoints, sending stock down

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zoom video communications inc. Shares fell 7% in after-hours trading after U.S. executives raised their annual profit forecast on Monday after reporting an earnings decline but downgraded expectations for the fourth quarter.

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zoom zm,
-1.69%
informed of Net income of $48.4 million, or 16 cents per share, on revenue of $1.1 billion in the fiscal third quarter, up from $1.05 billion a year earlier. After adjusting for stock compensation and other impacts, Zoom reported earnings of $1.07 per share, down from $1.11 per share last year, but easily topping analysts’ expectations. Analysts polled by FactSet were on average estimating adjusted net income of 83 cents per share on revenue of $1.094 billion.

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Zoom executives said they now expect full-year adjusted earnings per share of $3.91 to $3.94 on revenue of $4.37 billion to $4.38 billion, up from $3.66 to $3.66 on revenue of $4.39 to $4.4 billion previously. After targeting adjusted earnings of 3.69 per share. For the fourth quarter, they expect 75 cents to 78 cents per share on revenue of about $1.1 billion, according to FactSet, while analysts are on average estimating 81 cents per share on sales of $1.1 billion.

For more than a year, Zoom has provided revenue estimates in line with analyst estimates while substantially outperforming its conservative adjusted EPS guidance.

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“Enterprises Are Growing and Online Businesses Are Shrinking: The Question Is When Does Online Stabilize?” Kelly Steckleberg, Zoom’s chief financial officer, told MarketWatch. Zoom based its fourth-quarter EPS guidance on Monday on “challenging economic times,” she said.[foreign-exchange] pressure,” the long enterprise sales cycle and the decline in Zoom’s high-margin online business. She expects the online business to stabilize in the second quarter, with at least one analyst expecting low- to mid-single-digit growth for Zoom in its next fiscal year on a late Monday conference call.

Zoom’s stock rose nearly 4% immediately after the results were released, but then slid back to a 7% decline in extended trading after closing down 1.7% at $80.26. Zoom’s stock has dried up 56% this year, as has the broader S&P 500 index SPX,
-0.39%
2022 has slipped to 17%.

Zoom suggested belt-tightening companies are finding a renewed reliance on videoconferencing as they consolidate real estate holdings and lay off workers, but the platform continues to fend off competition from Microsoft Corp’s MSFT.
+0.34%
Teams, Cisco Systems Inc. CSCO of
-0.36%
Webex, Alphabet Inc. of google,
-1.88%

google,
-2.01%
Google, Salesforce Inc. of CRM,
-2.15%
Slack and many other corners. The ongoing challenges for Zoom were illustrated in two contrasting notes issued by financial analysts on Friday.

Citi Research analyst Tyler Radke outlined the many hurdles facing Zoom in its post-pandemic vaccine recovery, forecasting “nearly flat revenue growth next year.” In a November 18 note, he said new small-business customer acquisition will remain “low and churn high” with IT budgets tightening and a weak macro outlook.

“We see obstacles from the end [quarter] holding, with increasing competition (MSFT/Team), macro-related weakness, and further margin risks from mix shifts,” Radke wrote. “Although the phone is gaining traction, we believe upside headwinds The strength of the new product will more than offset and create downside risks following guidance and consensus estimates. [quarter],

Bernstein analyst Peter Weidt, who attended Zoom’s recent investor day, has a more optimistic view of Zoom’s immediate future. He believes its new Zoom calendar and email are simple, consumer-friendly features that will lead it to financial riches without Google or Microsoft taking over the enterprise space.

Credit: www.marketwatch.com /

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