Profits fall but Zoom maintains revenue momentum in Q3

To paraphrase Mark Twain, the demise of Zoom Video Communications in the post-Covid world of hybrid work continues to be very much exaggerated. In third-quarter results for its fiscal year 2023, the collaboration tech firm reported continued increases in revenues and number of high-spending enterprise clients, even though profits took a dent compared with a year ago.

For the three-month period to 31 October 2022, the company reported total revenue of $1.102bn, up 5% year on year. After adjusting for foreign currency impact, revenue in constant currency was 1.126bn, up 7% on an annual basis. Enterprise revenue was 614.3m, up 20% year on year. However, online revenue was down 9% year on year, at $487.6m.

Generally accepted accounting principles (GAAP) income from operations for the third fiscal quarter 2023 totalled $66.5m, compared with $290.9m in the same quarter of the previous fiscal year. After adjusting for stock-based compensation expense and related payroll taxes, and acquisition-related expenses, Zoom’s non-GAAP third-quarter income from operations was 380.9m, compared with $411.3m in the same quarter a year ago.

GAAP operating margin for the quarter was 6% and non-GAAP operating margin was 34.6%. GAAP net income attributable to common stockholders was 48.4m for the quarter, compared with $340.3m a year ago.

Non-GAAP net income for the third quarter was 323.2m, after adjusting for stock-based compensation expense and related payroll taxes, losses (gains) on strategic investments, net, acquisition-related expenses, undistributed earnings attributable to participating securities, and the tax effects on non-GAAP adjustments. A year ago, this was $338.4m.

Total cash, cash equivalents and marketable securities, excluding restricted cash, as of 31 October 2022 was 5.2bn, while net cash provided by operating activities was 295.3m for the third quarter, compared with $394.6m in the same quarter of fiscal year 2022. Free cash flow – net cash provided by operating activities less purchases of property and equipment – was 272.6m, compared with 374.8m in the same third quarter a year ago.

Yet despite the fall in profits, the increase in revenues was based on strong acquisition of new customers and expansion across existing customers. At the end of October 2022, Zoom had approximately 209,300 enterprise customers, up 14% from the same quarter in the last fiscal year.

IT witnessed a trailing 12-month net dollar expansion rate of 117% for enterprise customers. In all, 3,286 customers contributed more than 100,000 in trailing 12 months revenue, up approximately 31% from the same quarter in 2021. Yet online average monthly churn for the third quarter was 3.1%, down 60 basis points from the same quarter a year ago.

Commenting on the third-quarter performance, Zoom founder and CEO Eric Yuan said: “Our customers are increasingly looking to Zoom to help them enable flexible work environments and empower authentic connections and collaboration. Proactively addressing these needs with Zoom’s expanding platform continues to be our focus in this dynamic environment. In Q3, we drove revenue above guidance with continued momentum in enterprise.”

Going forward, Zoom expects total revenue for the fourth quarter of its fiscal year 2023 to be between 1.095bn and 1.105bn and non-GAAP income from operations to be between 316m and 326m. For the full fiscal year, total revenue is expected to be between 4.37bn and 4.38bn and full fiscal year non-GAAP income from operations is expected to be between $1.49bn and $1.5bn.