Why Zoom Video Communications Stock Popped Today

The video-conferencing leader delivered an exceptional first-quarter report. Here's what investors need to know.

Steve Symington
Steve Symington
Jun 7, 2019 at 12:31PM
Technology and Telecom

What happened

Shares of Zoom Video Communications (NASDAQ:ZM) were up 18.1% as of 11:35 a.m. EDT after the cloud-based remote conferencing company announced strong fiscal first-quarter 2020 results.

In its inaugural quarterly update as a publicly traded company following its IPO in April, Zoom Video said revenue soared 103% year over year to $122 million, translating to GAAP (generally accepted accounting principles) net income of $0.2 million, or roughly flat on a per-share basis, swinging from a $0.02-per-share loss in the same year-ago period. Adjusted for items like stock-based compensation, Zoom's (non-GAAP) earnings came to $8.9 million, or $0.03 per share, swinging from a $0.5 million loss a year earlier.

Analysts, on average, were modeling a breakeven quarter on revenue closer to $112 million.

Large meeting table with three video conference screens on the back wall.

IMAGE SOURCE: ZOOM VIDEO

So what

Zoom CEO Eric Yuan credited their results to "strong execution and expanded adoption of Zoom's video-first unified communications platform."

To be sure, Zoom now boasts 405 customers who each generate at least $100,000 in trailing 12-month revenue, or growth of 120% from the same year-ago period. Zooming out a bit (pun totally intended), the company also confirmed it counts roughly 58,500 customers with over 10 employees, for 86% year-over-year growth. And this larger customer base is spending more; Zoom's trailing 12-month net dollar expansion rate (for 10+ employee clients) remained above 130% for the fourth straight quarter. 

Zoom also significantly improved its cash flows, generating cash from operations of $22.2 million (up from $2.8 million a year ago), and free cash flow (FCF) of $15.3 million (swinging from negative FCF of $1.1 million in the same year-ago period).


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Now what

Looking ahead, Zoom expects fiscal second-quarter revenue of between $129 million and $130 million, with adjusted earnings per share of $0.01 to $0.02. Even the lower ends of both ranges were comfortably above analysts' models for breakeven earnings on revenue of $123 million.

Finally, for the full fiscal year 2020, Zoom says revenue should be between $535 million and $540 million, with adjusted net income per share of $0.02 to $0.03. Here again, Wall Street was looking for a breakeven year on revenue closer to $526 million.

After coupling that strong guidance with Zoom's relative outperformance to start the year, there was little not to love about this quarterly report. And Zoom stock is understandably rallying in response.