Zoom's shares rally on higher profit and outlook boost

Zoom Video Communications’ shares rallied in after-hours trading on Monday after the company reported a nearly four times yearly increase in its fiscal second-quarter profit and raised its outlook for the year on stronger demand from its enterprise customers.

The company’s net profit attributable to common stockholders in the three months to the end of July surged to $182 million, compared with $45.7 million in the same period a year earlier, the Nasdaq-listed company said in a statement on Monday.

Revenue for the May-July period rose 3.6 per cent on an annual basis to $1.14 billion, exceeding Refinitiv's expectations of $1.12 billion.

It was the company’s ninth straight quarter with revenue of more than $1 billion.

“Our mission of delivering limitless human connection remains core as we continue to innovate and expand our platform to help bring value and enhanced productivity to our customers with new AI features,” said Eric Yuan, Zoom’s founder and chief executive.

The company's stock price, which had soared at the height of the Covid-19 pandemic and then declined as economies reopened and people returned to the office, gained about 1.5 per cent at market close. Shares jumped as much as 8 per cent in after hours trading before settling up more than 4 per cent.

The company had a market value of $20.02 billion, at market close on Monday.

Zoom’s second-quarter operating cash flow increased 31 per cent year on year to $336 million, while the operating income surged 46 per cent to $177.6 million in the July quarter.

The company said its free cash flow, which is net cash provided by operating activities less purchases of property and equipment, surged 26.2 per cent year on year to $289.4 million.

Zoom’s total cash, cash equivalents and marketable securities stood at $6 billion as of July 31.

It said the main drivers of its revenue growth include acquiring new customers and expanding across existing customers.

Zoom had 218,100 enterprise customers at the end of its second-quarter, up 7 per cent from the same period a year earlier, with enterprise revenue increasing more 10 per cent to $659.5 million.

Of those customers, about 3,672 contributed more than $100,000 in revenue, up nearly 18 per cent on an annual basis, Zoom said.

In its third-quarter financial outlook, Zoom predicts its total revenue to hover between $1.11 billion and $1.12 billion, compared with analysts' average estimate of $1.13 billion, according to Refinitiv data.

It expects its annual revenue forecast to between $4.49 billion and $4.50 billion, compared with its earlier forecast of between $4.47 billion and $4.49 billion..

“Our increased total revenue guidance reflects a consistent view on enterprise, with tempered expectations for online for the remainder of the year,” Kelly Steckelberg, chief financial officer of Zoom, said during the conference call.

Zoom said it was developing its AI solutions, while keeping users’ privacy in core, to boost its bottom line in the future quarters.

Mr Yuan said Zoom did not use customer content to train its AI models or third-party AI models.

“As we develop and deploy AI solutions, we strongly believe that technology should advance trust," he said.

"We are privileged to have countless customers rely on us for their communications needs. We don’t take that for granted."

Zoom, which became an essential service for office meetings and family gatherings during the Covid-19 pandemic, invested $104 million in research and development in the last quarter, almost 6 per cent more than the prior year period.

This was more than 9.1 per cent of the total revenue earned during the quarter.

Investing in innovation and AI initiatives will remain a top priority for Zoom in the next quarters, Ms Steckelberg said.

“Given the strength in profitability and collections, we are increasing our cash flow outlook for the financial year 2024. We now expect free cash flow to be in the range of $1.20 billion to $1.23 billion,” she said.

In February, the video-conferencing company laid off 1,300 employees, or about 15 per cent of staff, as the technology industry cut back on a hiring surge during the global health crisis.