What happened
Shares of Zoom Video Communications (ZM 2.54%) were down nearly 7% today, although they trimmed losses and were down only 4.5% as of 12:05 p.m. ET. Investors were underwhelmed by the company's latest quarterly earnings update, specifically regarding the new year financial outlook.
So what
Zoom is now 77% off of its all-time high set in late 2020 as its early pandemic boom continues to unwind, although shares are up over 90% since the initial public offering (IPO) in early 2019. The steady decline over the past year and a half isn't reversing on the back of a solid fourth quarter of fiscal 2022 (the three months ended Jan. 31, 2022), although it is worth noting that the video conferencing leader did beat consensus Wall Street analyst expectations for revenue and adjusted earnings per share (EPS). Q4 revenue was up 21% year over year, and adjusted EPS were up 6%.
Image source: Getty Images.
The future is of far greater importance than the past, though, and that's been the rub for Zoom for quite some time. Revenue growth keeps slowing down, and it looks like that trend could continue in fiscal 2023 (the 12 months that will end Jan. 31, 2023). Management said it expects full-year sales of $4.54 billion at the midpoint of guidance, implying about an 11% year-over-year increase.
Now what
At this point, Zoom is no longer the richly valued stock it was at its IPO a few years ago. Shares trade for about 21 times trailing-12-month free cash flow to enterprise value, and about 34 times expected fiscal 2023 adjusted EPS. Zoom is still growing, albeit at a much more modest pace as effects of the pandemic gradually wear off. But sooner or later this stock will find a bottom if the business itself remains strong as it has been in these uncertain times.
