Zoom posts a beat and raise, why is it down 10%?
2min read Zoom Communications (formerly Zoom Video) reported strong Q3 FY24 results, beating analyst expectations on both revenue and earnings. The company posted adjusted EPS of $1.38, exceeding the $1.31 consensus estimate, and revenue of $1.18 billion, above the $1.16 billion forecast, marking year-over-year growth of 3.6%. Key metrics also outperformed, with enterprise revenue reaching $698.9 million (versus $685.4 million expected) and online revenue of $478.7 million slightly beating estimates. Zoom’s enterprise customer base grew to 192,400, surpassing expectations of 188,954, highlighting continued adoption at the enterprise level.
Zoom raised its guidance for Q4 and FY25, signaling confidence in its business trajectory. For Q4, the company forecasted adjusted EPS of $1.29-$1.30 (compared to $1.28 consensus) and revenue of $1.175-$1.180 billion (above the $1.17 billion estimate). For FY25, adjusted EPS guidance increased to $5.41-$5.43 from $5.29-$5.32, and revenue expectations were lifted to $4.66-$4.67 billion from $4.63-$4.64 billion. These raises reflect ongoing stabilization in the core platform, reduced churn in the online segment, and growth from emerging products such as AI Companion, Contact Center, and Workvivo.
Despite the solid results and upbeat guidance, shares fell approximately 10% in reaction, reflecting a mix of profit-taking and concerns about longer-term growth acceleration. The stock now sits at critical support at the 20-day moving average, which could present a bounce opportunity for day traders. This reaction may also stem from market expectations that Zoom’s guidance, while strong, remains conservative given its operational execution and recent wins, such as a 20,000-seat Contact Center deal.
Zoom’s Q3 performance highlighted stabilization in its online segment, achieving its lowest-ever churn rate of 2.7%, and impressive momentum in newer initiatives. The Contact Center customer base grew 82% year-over-year to over 1,250, while Workvivo posted 72% growth. These results underline Zoom's ability to diversify beyond its core video conferencing platform and compete effectively in the enterprise and communications-as-a-service (CCaaS) markets.
The company’s announcement of a $1.2 billion increase to its stock repurchase authorization, bringing the total to $2 billion, further underscores its confidence in long-term growth and shareholder value. Analysts have highlighted that this buyback program, coupled with strong free cash flow, positions Zoom as one of the most profitable players in its sector. This financial strength offers flexibility for strategic investments, including expanding its product ecosystem and driving international growth.
Zoom's management continues to execute well, leveraging AI-driven tools like the AI Companion and growing its partner ecosystem to support future growth. Analysts have expressed optimism for revenue reacceleration into mid-single digits, driven by stabilization in the core platform and growth in emerging products. However, the competitive landscape remains challenging, with pricing pressure from players like Microsoft Teams and Cisco Webex, necessitating continued innovation.
In summary, while Q3 results exceeded expectations and guidance was raised, the stock's selloff highlights cautious market sentiment around Zoom’s growth trajectory. For traders and investors, the current price action around key technical levels and the company’s conservative guidance could provide both short-term trading opportunities and longer-term reentry points.