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Zoom's Earnings Demolish Expectations: 5 Key Metrics You Should See

By Beth McKenna – Updated Jun 3, 2020 at 8:28AM

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The COVID-19 pandemic impact was massive, leading the company to nearly double its full-year revenue guidance.

Zoom Video Communications (ZM -1.18%) reported stunningly powerful fiscal first-quarter 2021 results on Tuesday after the market close.

It was a given that the videoconferencing specialist's results would get a massive tailwind from the work-from-home and study-from-home booms stemming from the COVID-19 pandemic. But even the most optimistic investors probably weren't prepared for the gigantic revenue and earnings beats plus guidance to match.

Zoom stock initially climbed nearly 5% in after-hours trading, and then gave up that entire gain and then some before regaining much of the lost ground. Shares closed the after-hours session down 1.7%.

The market's reaction isn't that unusual for a stock with a nosebleed valuation that's run up fast and furiously. It's natural that some market participants followed the adage "sell on the news" and took some profits off the table.

In 2020, shares have gained a whopping 206%, while the broader market is down about 4%. Since its initial public offering (IPO) in April 2019 at $36 per share, the stock is up 478%, while the S&P 500 has returned 8.5%.

Here's an overview of Zoom's quarter, along with its guidance for the second quarter and its upwardly revised outlook for the fiscal year 2021. 

Computer screen divided into quadrants with a different person's face in each one.

Image source: Getty Images.

1. Revenue skyrocketed 169%

Zoom's quarterly sales soared 169% year over year to $328.2 million, crushing the $202.5 million analysts were expecting. Growth was driven by the addition of new customers and expansion of the services the company provides to existing customers.

For context, last quarter, revenue grew 78% year over year, and in the preceding quarter, it rose 85%. For the full fiscal year 2020, revenue surged 88% year over year. The recent quarter's numbers give you a feel for the reported quarter's COVID-19 pandemic impact.

Here's a look at key customer metrics:

Customer Metric

Fiscal Q1 2021

Change (YOY)

Customers with more than 10 employees

265,400

354%

Customers contributing revenue of more than $100,000 in trailing 12 months

769

90%

Trailing-12-month dollar expansion rate for customers with more than 10 employees

Above 130% (for the eighth consecutive quarter) 

N/A

Data source: Zoom Video Communications. YOY = year over year.

Here's part of what CEO Eric Yuan had to say in the earnings release:

We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.

2. Adjusted operating income soared 566%

Income from operations under generally accepted accounting principles (GAAP) surged 1,363% year over year to $23.4 million. Adjusted for one-time items, operating income landed at $54.6 million, up 566% from the year-ago period.

3. Adjusted EPS surged 567%

GAAP net income was $27.0 million, or $0.09 per share, compared with $0.2 million, or $00.00 per share -- breakeven -- in the year-ago quarter. Adjusted net income came in at $58.3 million, or $0.20 per share, up from $8.9 million, or $0.03 per share, in the year-ago period.

Wall Street had been looking for adjusted earnings per share (EPS) of $0.09, so Zoom demolished the profit expectation. The company has zoomed by the Street's earnings projection in every quarter since going public.

4. Operating cash flow rocketed 1,067%

Operating cash flow grew 1,067% year over year to $259.0 million. Free cash flow was up 1,545% to $251.7 million.

The company ended the period with cash and cash equivalents of $1.1 billion.

5. Fiscal 2021 adjusted EPS is expected to soar 256%

Guidance for Q2 and fiscal 2021 blew away Wall Street's expectations.

For Q2, Zoom guided for revenue between $495 million and $500 million -- up from its prior outlook of $199 million to $201 million -- which, at the midpoint, represents 241% growth year over year. It expects adjusted EPS to be between $0.44 and $0.46 -- up from approximately $0.10 -- which, at the midpoint, represents growth of 463%.

Going into the report, the Street had been modeling for Q2 adjusted EPS of $0.11 on revenue of $223.3 million. So Zoom's outlook on both the top and bottom lines crushed analysts' expectations.

For the full fiscal year, the company greatly boosted its guidance. It now expects revenue of $1.775 billion to $1.800 billion -- up from $905 million to $915 million -- which, at the midpoint, represents growth of 187% year over year. It expects adjusted EPS of $1.21 to $1.29 -- up from $0.42 to $0.45 -- or growth of about 256%.

Going into the report, the Street had been modeling for full-year adjusted EPS of $0.45 on revenue of $934 million. So Zoom's outlook on both the top and bottom lines flew past expectations.

The bottom line

Zoom Video Communications started fiscal 2021 on a fantastic note and the rest of the year looks blindingly bright for it.

I don't think I've ever seen a company raise its full-year guidance as much, percentage-wise, as Zoom did.

Of course, the coronavirus pandemic is an event that's unprecedented in nearly all of our lifetimes. So it's not surprising some of its countless impacts would follow suit.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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