Zoom stock rose 10% on improved revenue and earnings and strong cash flow.
zoom video communications (ZM -0.44%) Shares rose 10.4% in after-hours trading Monday after the cloud-based communications company reported earnings for the fourth quarter of fiscal 2024 (ended Jan. 31).
The stock’s gains were largely due to quarterly earnings and revenue exceeding Wall Street’s consensus estimates, and final guidance for the first quarter and full year of fiscal 2025 was higher than analysts had expected. The company’s strong cash flow and approval of a $1.5 billion share buyback also probably provided a tailwind for the stock.
Here’s a look at Zoom’s fourth quarter results and guidance centered on five key metrics:
1. Sales increased by 2.6%
In the fiscal fourth quarter, Zoom’s revenue increased 2.6% year-over-year (2.7% in constant currency) to $1.147 billion. The results were higher than analysts expected of $1.13 billion and the company’s guidance range of $1.125 billion to $1.13 billion.
Growth was driven by Zoom’s enterprise business, which reported revenue of $667.3 million, up 4.9% year-over-year. Online segment sales decreased 0.5% to $479.2 million.
Year-over-year revenue growth in our enterprise business continued to slow. In the first, second and third quarters of fiscal 2024, this indicator was 13%, 10% and 7.5%, respectively.
| customer metrics | Fourth quarter of fiscal year 2024 | YOY change |
|---|---|---|
| corporate customers | 220,400 | 3.5% |
| Customers who earned more than $100,000 in the last 12 months | 3,810 | 9.8% |
| Net dollar growth of enterprise customers over the past 12 months | 101% | Decrease from 115% in the same period last year |
| Online segment average monthly churn rate | three% | 40 basis points (0.4 pp) improvement |
| Online business MRR* rate for online customers with at least 16 months of continuous service | 74.2% | Up 220 basis points (2.2 pp) |
Data source: Zoom Video Communications. The fourth quarter of fiscal 2024 ended on January 31. YOY = compared to the previous year. *MRR = Monthly Recurring Revenue. pp = percentage points.
A 101% net dollar growth in enterprise customers means that existing enterprise customers increased their spending with the company by an average of 1% year over year. This is a subpar result. This indicator decreased throughout fiscal 2024, with Q1, Q2, and Q3 results being 112%, 109%, and 105%, respectively.
That said, due to uncertainty in the macro environment, many corporate customers have reduced spending over the past year. Now that macro conditions have improved in 2024, the company’s net dollar growth rate in fiscal 2025 provides a clearer picture of how much companies value Zoom’s products.
It’s encouraging to see that the number of customers who made more than $100,000 in revenue last year increased 9.8% year over year.
2. Adjusted operating profit increased by 9.6%
Operating income under Generally Accepted Accounting Principles (GAAP) was $168.5 million, compared to a loss of $129.9 million in the year-ago quarter. Adjusted for one-time items, operating income was $443.7 million, up 9.6% from the previous year.
3. Adjusted EPS increased by 16%
GAAP net income was $298.8 million, or $0.95 per share, compared to a net loss of $104.1 million, or $0.36 per share, in the year-ago quarter. Adjusted net income increased 16% year-over-year to $444 million, or $1.42 per share.
Wall Street was looking for adjusted earnings per share (EPS) of $1.15, so the company lived up to those expectations. It also sprinted ahead of its own guidance of $1.13 to $1.15 per share.
4. Operating cash flow surged by 66%
Operating cash flow for the quarter increased 66% year-over-year to $351.2 million. Free cash flow increased 82% to $332.7 million.
Zoom’s balance sheet remains strong. The company ended the quarter with $7 billion in available cash, cash equivalents and marketable securities and no long-term debt.
5. Adjusted EPS is expected to decline approximately 7-6% in fiscal 2025.
Management issued guidance for the first quarter and full year of fiscal 2025 (ending the end of January 2025).
| metric system | Fiscal 2025 First Quarter Guidance | Expected Change in First Quarter of Fiscal Year 2025 YOY* | Fiscal Year 2025 Guidance | Projected Change for Fiscal Year 2025 YOY* |
|---|---|---|---|---|
| revenue | $1.125 billion | 1.8% | $4.6 billion | 1.6% |
| Adjusted EPS | $1.18 ~ $1.20 | 15%~17% | $4.85 ~ $4.88 | (6.9%) ~ (6.3%) |
Data source: Zoom Video Communications. *Calculated by author.
Ahead of the launch, Wall Street was modeling first-quarter revenue and adjusted EPS of $1.13 billion and $1.13, respectively. So while Zoom’s revenue guidance was very close to consensus estimates, its profit outlook was noticeably better than that.
And for fiscal year 2025, analysts expect revenue and adjusted EPS to be $4.65 billion and $4.71, respectively. So the company’s earnings outlook was a little lighter than expected, and its revenue guidance surprised by an uptick.
mixed bag
Like last quarter, Zoom Video Communications’ report was mixed. Solid adjusted EPS growth and solid cash flow continued to be positive factors. On the other hand, as I wrote last quarter, “If the company wants to grow profits over the long term, it will have to stop and reverse the year-over-year slowdown in revenue growth in its corporate business, which will slow down its net dollar expansion rate.”
