Zoom Video Communications’ Earnings: Sound Numbers, Low Valuation but Easing Margins

Zoom Video Communications (ZM) reported on Monday, May 23, its revenue for Q1 FY 2023 annually increased by 12% to reach $1.07 billion, with the number of enterprise customers expanding by 24%. However, the company's net income halved to $113.65 million, or $0.37 diluted earnings per share. Non-GAAP net income per share was $1.03, beating estimates for $0.87. However, this number was down $1.32 from the prior year period, and this year's figure was also boosted a bit by the exclusion of significant stock-based compensation.

The company launched Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales, thereby enhancing the customer experience and promoting hybrid networks.

As we all remember, Zoom really hit the big time when it became a buzzword during the early stages of the Covid lockdowns. However, revenue growth has slowed dramatically as lockdowns have eased; today growth stands at 29% on a TTM basis vs. nearly 300% in Q2 2021. The company is guiding to FY growth of around 11%, meaning a material deceleration is yet to come. Having said that, all kinds of margins remain strong. Thus, TTM gross margin remains at 75%, TTM EBITDA margins at 39% and TTM unlevered pretax FCF margins at 31%.

Zoom soared over 19% immediately following the earnings announcement, despite the stock closing the day with a loss of 0.46%. On Tuesday in premarket, however, that huge advantage evaporated pointing to a smaller gain of just 6.3% reflecting investors’ reluctance to trade low investment multiples against first signs of operations’ slowdown.