Over the course of the Covid-19 pandemic, few companies met the needs of the uncertain times better than communications company Zoom Video Communications (ZM 0.53%). With its suite of offerings for telecommuting and videoconferencing, "Zoom" evolved from a company into a verb.

Now that the pandemic is largely over, however (as Covid evolves into an endemic disease), what will Zoom do for an encore? We found out the answer to that question on Monday, when Zoom reported its fiscal Q1 2023 earnings, and explained how it's now focusing on "promoting hybrid work" to connect still-working-from-homers with their back-in-the-office counterparts, with products including "Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales." 

In combination with Zoom's other offerings, these products helped the company grow sales 12% to $1.1 billion in Q1. Total business customers grew twice as fast -- 24% -- and customers spending more than $100,000 a year on Zoom, well, zoomed 46% higher.

Hybrid work teleconference among several employees in an office and a worker in a hardhat on video.

Image source: Getty Images.

Pluses and minuses

Not all the news was good, however. Zoom's "non-GAAP net income per share was $1.03, down from $1.32 per share a year ago, and its GAAP profits were literally cut in half to $0.37 per share, hurt by an operating profit margin that shrank by nearly 10 full percentage points. Zoom had to spend heavily on marketing to remind customers why it would still be relevant in a post-pandemic world, and those costs surged 48% year-over-year.

On the plus side, though, Zoom was able to cut its overhead costs by 26% in the quarter, and much of the rest of its spending was on research and development. Zoom more than doubled R&D spending in the quarter -- up 121%! -- which should help the company maintain its leading position in the videoconferencing space.

Long story short, Zoom is managing the transition back to office work well. While investors may be disappointed with the decline in profitability, it's worth pointing out that although earnings as calculated according to generally accepted accounting principles (GAAP) appeared to decline, Zoom's free cash flow actually improved year-over-year. Zoom generated positive cash profits of $501 million in the quarter -- up 10% year-over-year.

Speaking of free cash flow, though, one final point bears highlighting: According to data from S&P Global Market Intelligence, analysts who follow Zoom are currently projecting the company will generate $1.5 billion in free cash flow this year. But in a note that came out after earnings, banker Piper Sandler advised that Zoom management is actually warning that this number is too high -- that $1.3 billion will be closer to the truth.

Even assuming that's how things turn out, though , Zoom stock is trading for an enterprise value-to-free cash flow of only 17.6 at present. For a stock expected to grow earnings at 15% per year over the next five years, that's not a half bad price.