What happened
Shares of Zoom Video Communications (ZM 0.05%) fell 14.7% on Tuesday after the cloud communications leader's slowing growth troubled analysts and investors.
So what
Zoom's revenue jumped 35% year over year to $1.05 billion in its fiscal 2022 third quarter. That marked a significant deceleration from the 54% growth the video-chat company experienced in the second quarter and the staggering 367% growth it delivered in the third quarter of 2021.
Zoom Video Communications' stock fell sharply on Tuesday. Image source: Getty Images.
To offset the slowdown, Zoom has placed a point of emphasis on expanding its relationships with larger companies, with tools such as its Zoom Rooms video conference room solutions that make it easier for onsite and offsite employees to communicate. Zoom had 2,507 customers contributing more than $100,000 in trailing-12-month revenue at the end of the third quarter, which was up 94% from the year-ago period. These dynamics can also be seen in its net dollar expansion rate in customers with more than 10 employees, which checked in above 130% for the 11th straight quarter.
All told, Zoom's adjusted net income increased 14% to $338.4 million, or $1.11 per share.
Now what
Management expects fourth-quarter revenue of roughly $1.05 billion. That would represent a further deceleration in revenue growth, to 19%. The company also guided for operating income and adjusted per-share profits of approximately $362 million and $1.07.
Multiple investment firms cut their price targets for Zoom's stock following its third-quarter earnings release and Q4 guidance. For one, Evercore ISI analyst Peter Levine reduced his share price forecast from $255 to $235 on concerns that Zoom's growth investments will weigh on its profit margins in the coming year. For another, Deutsche Bank analyst Matthew Nikam slashed his stock price estimate from $350 to $280, citing similar concerns.
"While we're positive on Zoom's strategic initiatives and investments in key growth areas, we find it tougher to like a stock with more sharply decelerating growth and incremental pressure on profitability," Nikam said.
