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Zoom's Record Quarter Wasn't Enough for Wall Street

By Daniel Sparks – Updated Aug 31, 2021 at 5:03PM

Key Points

  • Revenue and earnings per share both came in ahead of analyst estimates.
  • Growth is decelerating as the company laps tough comps and the economy reopens.
  • Full-year revenue guidance may have disappointed some investors.

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The company's first billion-dollar quarter disappointed -- even with $455 million in free cash flow.

Zoom Video Communications (ZM 6.89%) announced some stellar results for its second quarter of fiscal 2022 after the bell on Monday. Revenue and net income soared to record highs -- both coming in ahead of analysts' average estimates. But this apparently wasn't enough for the market. Shares fell 12% in after-hours trading on Monday. 

Here's a closer look at the results, as well as why the market is likely unimpressed.

A boardroom of people videoconferencing with a woman on a TV.

Image source: Getty Images.

Zoom's Q2 earnings: The must-see metrics

Zoom's fiscal Q2 revenue rose 54% year over year to $1.02 billion. Though this did exceed analysts' average forecast for revenue of $991 million, it didn't beat estimates by as much as the company usually does. In fiscal Q1, for instance, revenue was more $50 million higher than anticipated. Also potentially sparking some concerns, the company's 54% year-over-year revenue growth rate was a significant deceleration from the 191% growth Zoom posted in fiscal Q1. Of course, investors should view the Q2 growth rate in context: It's good considering the company is up against a year-ago period when revenue soared 355% year over year. 

Net income skyrocketed, rising from $186 million in the year-ago period to $317 million. Non-GAAP (adjusted) earnings swelled from $58 million in the year-ago period to $402 million.

Free cash flow, or cash from operations less capital expenditures, was an impressive $455 million during the period. This put total cash, cash equivalents, and marketable securities at the end of the period at $4.7 billion.

Importantly, the number of customers contributing more than $100,000 in trailing-12-month revenue rose 131% year over year. Customers with more than 10 employees rose 36% year over year to about 505,000.

This scale, said Zoom founder and CEO Eric Yuan in the company's fiscal second-quarter earnings call, "positions us extremely well to support organizations and individuals as they look to reimagine work, communications, and collaboration."

Where Zoom may have disappointed

While it's possible that Zoom's smaller-than-usual top-line beat may be part of the reason for skittish investors following the earnings release, the more likely factor at play is the company's underwhelming full-year revenue guidance. The company said it expected full-year fiscal 2022 revenue to be between $4.005 billion and $4.015 billion. This was about in line with analysts' consensus forecast and therefore may have not delivered the surprise that investors were hoping for from the high-flying growth stock. The in-line guidance despite better-than-expected fiscal second-quarter results may have some investors worrying about the company's growth prospects as the economy opens.

Of course, investors should remember that Zoom is up against some extraordinary comps. In the context of last year, the tech company continues to execute very well.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

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