During the pandemic,
Zoom Video Communications
became the world’s fastest-growing technology company, at one point posting three straight quarters with growth of 355% or better.
Of course, the boom days faded as the economy reopened. In response, Zoom has been seeking to grow by moving beyond its flagship web meeting service. It has added software for contact centers, webinars, chat, and email, plus new artificial intelligence tools, among other things.
But growth remains scant. On Monday, Zoom is likely to post its sixth-straight quarter of single-digit revenue growth.
Recent trading in Zoom stock (ticker: ZM) reflects the Street’s concern about the company’s recently slowing growth. The price is down about 5% this year, reflecting a 4% dip since the company last reported financial results.
For the October quarter, Zoom projects revenue of between $1.115 billion and $1.2 billion, with non-GAAP profits ranging from $1.07 to $1.09 a share. Street consensus estimates as tracked by FactSet call for revenue of $1.119 billion, up 1.5%, and profits of $1.08 a share.
For the fiscal fourth quarter ending in January, analyst consensus estimates for Zoom call for revenue of $1.129 billion, up 1% from a year earlier, and profits of $1.09 a share.
Zoom’s forecast for the January 2024 fiscal year calls for revenue of between $4.485 billion and $4.495 billion, up 2%, with adjusted profits of $4.63 to $4.67 a share. Consensus estimates call for revenue of $4.492 billion and earnings of $4.68 a share.
While the addition of new services could boost growth in the long run, Zoom also faces intensifying competition, in particular from
Microsoft
Teams, which is bundled with Office.
In a research note previewing the quarter,
Morgan Stanley
analyst Meta Marshall said that the stock isn’t likely to move much until investors feel more confident about the company’s “online” business, the smaller customers who flocked to the platform during the pandemic. Marshall has an Equal Weight rating on Zoom shares,
Another key question, Marshall said, is when some of Zoom’s new products might spur a reacceleration in the company’s enterprise business. And she also wonders when Zoom might use its strong balance sheet to make strategic acquisitions. Zoom has $6 billion in cash and short-term investments, equal to about 31% of its market capitalization.
Marshall doubts any of those issues will be resolved by the October quarter results.
Citi
analyst Tyler Radke, long a bear on Zoom shares, on Friday lifted his rating on the stock to Neutral from Sell, saying it is sitting “near trough multiples.” Radke said he is waiting for signs of business stabilization, noting that recent surveys suggest a possible easing of the headwinds, with web traffic declines recently moderating. But he said Zoom still faces “significant risks, some arguably existential,” in particular the competitive threat from Microsoft (MSFT).
Baird analyst William Power, who maintains an Outperform rating on Zoom shares, thinks the company’s enterprise business fared better than the online segment in the quarter, with a possible boost from the company’s new AI features.
“We like the stock for long-term value investors,” wrote Power, “though recognize accelerating revenue is the key potential catalyst.”
Write to Eric J. Savitz at eric.savitz@barrons.com
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