Zoom Video (ZM +12%) significantly exceeded its Q2 (Jul) earnings forecast, reported revenue growth above its guidance, and raised its FY25 (Jan) financial targets. This led to a notable increase in its stock price today. The video conferencing platform has been rebounding after hitting new lows earlier this month, gaining approximately 10% ahead of its Q2 results. Following the strong report, investor confidence has kept ZM trending positively.
- Adjusted EPS for Q2 grew by 3.7% year-over-year to $1.39, surpassing ZM's estimate of $1.20-1.21, despite a year-over-year decline. Non-GAAP gross margins contracted by 170 basis points to 78.6% due to increased AI investments and data center upgrades. However, management expects margins to improve towards the long-term target of 80%, with margins hovering around 79% for the rest of FY25.
- Revenue increased by 2.1% year-over-year to $1.16 billion, driven by a 4% growth in Enterprise. ZM's focus on the upmarket resulted in 3,933 customers contributing over $100K in trailing twelve months (TTM) revenue, a 7% year-over-year improvement. Geographically, revenue in the Americas rose by 3%, while EMEA was flat, and APAC declined by 2%.
- Revenue growth was attributed to the expansion of Zoom Workplace, upmarket movement with Contact Center, and enhanced AI capabilities. Zoom Workplace, launched in April, is an AI-powered platform that includes Zoom Meetings, Team Chat, and Phone, along with an AI companion enabled on over 1.2 million accounts. Additionally, Contact Center surpassed 1,100 customers, more than doubling from last year.
- Following the positive Q2 results, ZM raised its FY25 guidance, projecting adjusted EPS of $5.29-5.32, up from $4.99-5.02, and revenue of $4.63-4.64 billion, up from $4.61-4.62 billion. Management expects the Americas to continue boosting numbers, while softness overseas, especially in EMEA due to ongoing conflicts, may persist.
Despite a strong performance ahead of Q2 results, ZM's report was impressive enough to push the stock to its highest levels since March, hinting at a potential broader recovery. However, concerns remain, such as the nearly flat year-over-year revenue growth. ZM has not seen double-digit top-line growth since 2022, underscoring its challenges in a post-pandemic environment.
Sustaining today's buying momentum may require more than the current slow growth rate. AI could be the catalyst, although its current features, like summarizing meetings, providing real-time transcripts and translations, and generating responses, may not be sufficient to drive a significant customer increase. Further enhancements could make a significant difference.
