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Zoom boom in enterprise helps escape the dip

Thanks mainly to growing strength in its enterprise segment, Zoom Video Communications was able to post better than expected profits for Q1 FY23 (ended April 30). Turnover benefited too, coming in at the higher end of guidance and past the $1 billion mark.

The enterprise feel-good factor, plus greater "cloud efficiencies," was strong enough for the online videoconferencing company to revise upwards its full fiscal year adjusted profit forecast.

The Zoom share price saw a 15% boost after Q1 results were first digested.
 (Source: Kay Roxby/Alamy Stock Photo)
The Zoom share price saw a 15% boost after Q1 results were first digested.
(Source: Kay Roxby/Alamy Stock Photo)

The new adjusted profit per share forecast is nestled between $3.70 and $3.77, compared with earlier expectations – as reported by Reuters – of between $3.45 and $3.51.

The markets liked what they saw, giving the Zoom share price a 15% boost after Q1 results were first digested. It's a welcome boost for shareholders, which previously saw the Zoom share price tank 85% from its pandemic peak.

Tailwinds and headwinds

Q1 revenue grew 12% year-on-year to $1.074 billion.

"The growth was primarily driven by strength in our enterprise business, which saw a steady increase in customers, as well as improved renewal rates year over year," said Zoom CFO Kelly Steckelberg on the company's earnings conference call (as reported by The Motley Fool).

Revenue from enterprise customers grew 31% year-on-year and represented 52% of total revenue, up from 45% in Q1 FY22. The number of enterprise customers grew 24% over the same period to around 198,900.

"We expect revenue from enterprise customers to become an increasingly higher percentage of total revenue over time," added Steckelberg.

"Our trailing 12-month net dollar expansion rate for enterprise customers in Q1 came in at 123%."

Focusing on non-GAAP figures, the CFO flagged that Q1 operating income expanded to $400 million, exceeding the high end of $350 million guidance.

"We are seeing the benefit of efficiencies in our cloud operations," claimed Steckelberg.

Expansion

On a GAAP basis, Q1 income from operations was $187.1 million, down from $226.3 million in the Q1 FY22. After adjusting for stock-based compensation expense and related payroll taxes, litigation settlements, and acquisition-related expenses, it's then that you arrive at the non-GAAP figure of around $400 million.

Although online renewals improved sequentially, Steckelberg added that "growth was impacted mainly by international headwinds, including the strengthening of the dollar and the Russia-Ukraine war."

Zoom CEO Eric Yuan reckoned that Q1 launches of Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales – all of which are designed to promote hybrid working – "will further expand our market opportunity for future growth and expansion with customers."


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The company also has high hopes for its recent acquisition of AI startup Solvvy to bolster its contact center offering.

"Customers need a full-blown great contact center experience from Zoom, right?" said Yuan on the conference call.

"The Solvvy product will be part of that. Many customers have already told us they are very excited about this acquisition."

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— Ken Wieland, contributing editor, special to Light Reading

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