It has been about a month since the last earnings report for Zoom Communications (ZM – Free Report) . Shares have added about 2.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zoom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Zoom Q3 Earnings Beat, Enterprise Customers Drive Revenues
Zoom’s third-quarter fiscal 2025 adjusted earnings of $1.38 per share beat the Zacks Consensus Estimate by 5.34% and increased 7% year over year.
Zoom’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 17.81%.
Revenues of $1.178 billion beat the consensus mark by 1.23% and increased 3.6% year over year on strong growth from Enterprise customers. Adjusting for foreign currency impact, revenues in constant currency were $1.177 billion, up 3.6% year over year.
Quarter Details
Enterprise revenues were $698.9 million, up 5.8% year over year and representing 59.3% of total revenues. Customers contributing more than $100,000 in revenues in the trailing 12 months grew 7.1% to 3,995. These customers accounted for 31% of revenues.
The number of Enterprise customers at the end of the fiscal third quarter was approximately 192,400. In the quarter, the percentage of total Online MRR pertaining to Online customers with a continued term of service of at least 16 months was 74.1%, increasing 90 bps year over year.
The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 98%.
In the quarter, Zoom saw amazing traction with Workvivo, reaching 3 new Workvivo customers with more than $1 million in ARR and including the largest deal till date with a Fortune 10 company. Workvivo was named Meta Platforms’ only preferred migration partner for its customers as it retires Workplace from Meta. Workvivo customers increased 72% year over year due to the Meta partnership.
ZM witnessed additional traction in Zoom Contact Center as it surpassed 1,250 Zoom Contact Center customers, representing more than 82% year-over-year growth. Zoom Contact Center landed a record 20,000-seat deal in EMEA.
During the fiscal third quarter, Zoom launched AI Companion 2.0, along with paid add-ons, to the platform to drive product differentiation.
Non-GAAP Operating Details
Non-GAAP gross margin in the fiscal third quarter was 78.9% compared to 79.7% in the year-ago period, mainly due to investments in AI innovation.
Research and development expenses increased 13.28% year over year to $222.98 million. Sales and marketing expenses declined 3.4% to $361.7 million, while general and administrative expenses increased 0.8% to $126.1 million.
Non-GAAP operating income rose 2.4% to $457.7 million year over year. The operating margin came in at 38.9% compared with the year-ago quarter’s operating margin of 39.3%.
Balance Sheet
Total cash, cash equivalents and marketable securities, as of Oct. 31, 2024, were $7.7 billion. As of July 31, 2024, cash, cash equivalents and marketable securities were $7.5 billion.
Net cash provided by operating activities was $483.2 million for the fiscal third quarter, down 2% year over year. Free cash flow was $457.7 million, up 1% year over year.
Guidance
Zoom expects fourth-quarter fiscal 2025 revenues between $1.175 billion and $1.180 billion.
Non-GAAP earnings per share are expected in the range of $1.29-$1.30.
For fiscal 2025, Zoom expects revenues in the range of $4.656-$4.661 billion.
Non-GAAP earnings per share are expected in the band of $5.41-$5.43.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 7.19% due to these changes.
VGM Scores
At this time, Zoom has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zoom has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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