With shares of Zoom Video (ZM, Financial) fluctuating between $60-80 for nearly two years, it may take several quarters of strong results for a significant comeback. However, after delivering solid Q1 (Apr) numbers and raising its FY25 (Jan) guidance, ZM could be turning a corner.
- Revenue growth remained modest in Q1, increasing 3.2% year-over-year to $1.14 billion. This marks ZM's fifth consecutive period of low-single-digit revenue growth and eighth straight quarter without double-digit growth. Despite this, the stability in revenue highlights a positive trend, with a consistently expanding customer base.
- In Q1, ZM's larger customer base, contributing over $100K in TTM revenue, grew by about 8.5% year-over-year, consistent with the 9.8% increase last quarter. Total Enterprise customers remained steady at around 218,000, after adjusting for Enterprise users transitioned to ZM's Online product due to low ARR.
- Enterprise revenue outpaced total revenue growth again in Q1, a positive sign for ZM's long-term growth. Enterprises, with larger budgets, are less likely to switch tech products and easier to upsell. ZM also achieved its lowest Online average monthly churn at 3.0%, excluding a minor uptick due to stricter payment grace periods.
- Profitability remains crucial for attracting investors. In Q1, ZM's bottom line expanded by 16% year-over-year to $1.35 per share. Although non-GAAP gross margins compressed by 120 bps to 79.3%, this was mainly due to AI investments. Further data center upgrades may cause a temporary dip in margins next quarter before they expand again. ZM maintained its FY25 margin outlook at approximately 79%.
- ZM raised its FY25 guidance, projecting adjusted EPS of $4.99-5.02, up from $4.85-4.88, and revenues of $4.61-4.62 billion, up from $4.60 billion. However, the enthusiasm was tempered as the increase matched the Q1 upside.
In summary, ZM's Q1 report showed stability similar to previous quarters. While this may not significantly boost shares in the short term, ZM is making strategic moves to foster long-term growth. Investments in Zoom Contact Center, Phone, and AI Companion offerings, along with securing deals with larger organizations, are helping ZM build a robust economic moat.
