Zoom Shares Slide 10% on Slowing Growth

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  • Zoom posted a higher-than-expected earnings forecast for the full year, but the revenue guidance exactly met expectations.
  • The company announced a plan to acquire cloud contact-center software maker Five9 for $14.7 billion in stock in the quarter.

Zoom shares fell 12% in extended trading on Monday after the video-calling software maker reported fiscal second-quarter earnings that beat analysts' expectations but showed slowing growth versus the previous quarter.

Here's how the company did:

  • Earnings: $1.36 cents per share, adjusted, vs. $1.16 per share as expected by analysts, according to Refinitiv.
  • Revenue: $1.02 billion, vs. $991.0 million as expected by analysts, according to Refinitiv.

Revenue increased by 54% year over year in the quarter, which ended on July 31, according to a statement. In the previous quarter revenue had grown 191%. Next quarter, Zoom is guiding to 31% growth.

Gross margin widened to 74.4% from 72.3% in the previous quarter. The availability of new data center capacity benefited the company's gross margin in the quarter, as well as lower usage during the summer, thanks partly to school being out of session, Kelly Steckelberg, Zoom's finance chief, said on a Zoom call with analysts.

In the quarter Zoom announced its intent to acquire cloud contact-center software provider Five9 for $14.7 billion in stock. The deal comes after Zoom gained millions of new users after the coronavirus emerged and companies rushed to enable online meetings, pushing up Zoom's stock.

Also in the quarter Zoom announced the availability of Zoom Events, which gives organizations the ability to hold premium online meetings. And Zoom said it invested in event software maker Cvent as Cvent sought to go public through a merger with a special purpose acquisition company.

Zoom now has 2 million seats for the Zoom Phone cloud-based phone service, up from 1.5 million three months earlier, Steckelberg said.

With respect to next quarter's guidance, Zoom called for $1.07 to $1.08 in adjusted earnings per share on $1.015 billion to $1.020 billion in revenue. Analysts polled by Refinitiv had expected adjusted earnings per share of $1.09 and revenue of $1.01 billion.

For the full fiscal year, Zoom said it sees adjusted earnings of $4.75 to $4.79 per share and $4.005 billion to $4.015 billion in revenue — that's a bump from its last estimates of $4.56 to $4.61 in adjusted earnings on $3.98 billion to $3.99 billion in revenue. It's also ahead of analysts' consensus estimates of $4.67 in adjusted earnings per share and $4.01 billion in revenue.

The company increased its forecast for the year as coronavirus case counts have increased, including from the Covid delta variant, and some companies delayed plans to reopen offices.

The guidance assumes strong growth from Zoom's direct and channel businesses, as well as weakness in the online business because of challenges among smaller customers and consumers, Steckelberg said. Gross margin will expand when students return to schools, she said.

At the same time, travel is returning sooner than executives had expected, she said.

Not including the after-hours price change, Zoom stock is up about 3% since the start of 2021, trailing the S&P 500, which is up almost 21% over the same period.

WATCH: Trading Nation: Zoom to report earnings on Monday — Two traders on whether the pandemic fave can hold on

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