Commentary on Zoom's Q3 Results - Meeting Expectations, but with Weak Growth

Yesterday, the video conferencing behemoth, Zoom, unveiled its financial report for the third quarter of fiscal year 2024 along with its outlook for the upcoming quarter.

 

The latest financial disclosures have laid bare that the company is persistently grappling with growth bottlenecks. Despite the fact that its performance in the third quarter managed to outpace Wall Street's expectations, the rather tepid 4% revenue growth rate has left investors disappointed, consequently triggering a 5% slump in the share price during after-hours trading.

 

Let's now delve into some of the pivotal data points from Zoom's third-quarter financial report:

 

-Adjusted earnings per share were $1.38, surpassing the $1.31 expected by analysts.

 

-Revenue was $11.8 billion, a 4% increase year-on-year.

 

-Net profit was $207.1 million, a significant increase compared to $141.2 million in the same period last year.

 

-The number of enterprise customers reached 192,400, with approximately 800 new additions in this quarter.

 

-The number of enterprise customers with an annual revenue of over $100,000 reached 3,995.

 

-The churn rate of individual and small business users hit a record low, dropping to 2.7%.

 

It's worth noting that this is already the 10th consecutive quarter that Zoom has maintained single-digit growth, in sharp contrast to the growth momentum during the pandemic when its business scale tripled. To seek a breakthrough, Zoom is actively deploying in the AI field:

 

The company plans to launch the "Custom AI Companion" chatbot in the first half of 2025.

 

Zoom has strengthened the Contact Center platform, with related revenue growing by 5.8% in this quarter.

 

The company has renamed the company "Zoom Communications Inc." to reflect its transformation into an AI-powered work platform. The name change of Zoom clearly reflects that the company is transforming into an AI-centered work platform.

 

Looking back at 2020, Zoom rose rapidly during the pandemic and became synonymous with video conferencing. Especially when companies were forced to shift their employees to remote work, Zoom saw a significant increase in both the number of users and revenue.

 

However, as employees gradually returned to the office, market competition has intensified day by day. Companies such as Google, Microsoft, and Slack have begun to offer video conferencing functions as part of their office suites, putting greater pressure on Zoom.

 

To cope with this change, Zoom has launched more comprehensive communication tools, such as Zoom Team Chat, and introduced the Zoom Workplace solution. In October this year, Zoom's AI assistant 2.0 was officially launched, equipped with more powerful summarization and assistance functions. Through these initiatives, Zoom not only hopes to maintain its advantages in the highly competitive market but also strives to transform into a broader work solution to ensure that it can meet the needs of the modern workplace.

 

Finally, the company also announced an additional $12 billion share repurchase program, bringing the total repurchase authorization to $20 billion. The transformation dilemma of Zoom reflects the common challenges faced by To B SaaS enterprises in the post-pandemic era.

 

It can be seen that even industry leaders like Zoom need to seek new growth points through innovative means such as AI empowerment. And we still maintain an optimistic attitude towards Zoom's future. Zoom, with the addition of AI intelligence, may bring us more surprises.

 

Combined with technical indicators, looking at the Bollinger Bands with the 20-day moving average as the middle track, the current share price has risen to $89.03, approaching the upper track of the Bollinger Bands.

 

If the share price can effectively break through the upper track in the future and the opening of the Bollinger Bands continues to expand, indicating a strong characteristic of the share price, it is expected to continue to expand upward. Meanwhile, Zoom's chart conforms to a rising wedge pattern.

 

However, currently, the market is not satisfied with Zoom's financial report, and we still need to consider certain market sentiments.