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Zoom: Q4 Earnings Indicate Company Remains Relevant in Post-Pandemic World

Published 02/28/2023, 12:42 PM
Updated 07/09/2023, 06:31 AM
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Zoom Video Communications (NASDAQ:ZM) reported better-than-expected financial results for the fiscal fourth quarter and provided an upbeat earnings outlook for the year, sending its shares higher on Tuesday.

The video communications platform developer reported adjusted earnings per share (EPS) of $1.22 in the fourth quarter, beating the consensus estimates of 81 cents per share, according to Refinitiv.

Revenue came in at $1.12 billion in the three-month period, above the analysts’ estimates of $1.10 billion, and up 4% year-over-year. This marks a significant growth slowdown compared to the previous two years when Zoom’s revenue skyrocketed during the coronavirus pandemic.

“In fiscal year 2023, our growing base of Enterprise customers increasingly looked to Zoom to provide a seamless communication and collaboration platform, and drive productivity and efficiency during turbulent times,” said Zoom founder and CEO, Eric S. Yuan.

Growth Continues to Slow but Still Better Than Feared

On the other hand, the latest quarterly report marked the first time Zoom posted a net loss since 2018, losing $104 million in the period that ended on Jan. 31, down from a net income of 491 million in the same period last year. The net loss comes from stock-based compensation costs.

The company also continued to face headwinds that emerged last year such as executives carefully considering before paying the company for services, Zoom’s Chief Executive Officer Eric Yuan said during a conference call. Further, some companies reduced the number of seats for which they use Zoom’s platform as part of their cost-cutting measures.

Looking ahead, Zoom said it expects growth to continue slowing down in 2023, with the company expecting revenue in the range of $4.43 billion to $4.45 billion, implying a growth of only 1.1%, compared to consensus projections of $4.6 billion. Adjusted EPS is expected to range between $4.11 and $4.18, while the analysts were looking for $3.66 per share.

As for the fiscal Q1 2024, Zoom expects adjusted EPS in the range of 96 cents to 98 cents, exceeding the expected 84 cents per share. Revenue is expected to land between $1.080 billion to $1.085 billion, below the projected $1.11 billion.

Zoom said it plans to launch email and calendar services in the fiscal Q4, along with a virtual agent chatbot designed to help address customer service inquiries.

Aggressive Cost Cuts

Earlier this month, the San Jose, California-based company slashed around 1,300 jobs in response to a notable decline in demand as the world recovers from the pandemic. The announced layoffs will affect almost 15% of Zoom’s workforce, Yuan said, who pledged to take a 98% pay cut for the new fiscal year and renounce his bonus.

Mr. Yuan earned $1,115,089 in total compensation in 2022, out of which $301,731 was the basic salary. The records also show that Mr. Yuan has 19,265 unexercised employee stock options, which can be exercised at $4.15 per share, as well as 113,425 unexercised stock options that are exercisable at a $3.77 share price, both by September 24, 2023.

“We worked tirelessly … but we also made mistakes. We didn’t take as much time as we should have to thoroughly analyze our teams or assess if we were growing sustainably, toward the highest priorities,” Yuan said.

The company expects to incur from $50 million to $68 million in charges as a result of the layoffs, according to a regulatory filing, adding a major part of it will be spent in the fiscal Q1 2024.

In the announcement, Yuan said the workforce cuts would affect all business organizations across the company, while the affected employees would be provided with up to 16 weeks of salary and healthcare coverage.

“As the CEO and founder of Zoom, I am accountable for these mistakes and the actions we take today– and I want to show accountability not just in words but in my own actions,” Yuan added.

RBC Capital Markets analyst Rishi Jaluria said that layoffs suggest that:

“we shouldn’t expect reacceleration in the near term on the revenue side, but we could see additional upside to margins for a company that is already profitable.”

The move represents a U-turn from two years ago when Zoom ramped up hiring efforts to meet the unprecedented demand. Now, the company joins other U.S. tech companies in taking steps to slash costs ahead of a potential recession. Big Tech companies like Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Meta Platforms Inc (NASDAQ:META) have all announced layoffs in recent months to weather the impact of a downturn amid record-high inflation and interest rates.

Zoom Hopes Remote Work is Here to Stay

While the strong demand that emerged in recent years is fading, the pandemic has likely forever changed traditional work habits. Recent research by Zippia has found that 68% of Americans prefer to work remotely.

This preference for remote work presents a challenge for employers as they face a tough hiring market which allows job seekers to be selective about their employment options, giving them the upper hand. On the other hand, it is likely to help Zoom to sustain strong revenue growth despite the post-pandemic normalization.

The battle between remote work and traditional onsite work will only result in a stalemate if there is no flexibility or compromise. This is because everyone seems to value flexibility and a better work-life balance, as highlighted by the fact that even company executives are willing to leave their jobs if they are not 100% remote.

Summary

Zoom shares are trading higher on Tuesday after the online video company posted results and guidance that beat analysts’ views. The latest earnings report comes after the company recently announced that it will cut 1,300 jobs as it looks to offset slowing growth.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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