What happened
Shares of Zoom Video Communications (ZM 1.57%) fell by 41.3 % in the first half of 2022, according to data provided by S&P Global Market Intelligence.
The videoconferencing company shot to prominence during the pandemic and saw its share price soar by 173% from $67.28 at the start of 2020 till the end of last year. After this decline, shares are still up around 60%.
Image source: Getty images.
So what
Zoom reported strong numbers for its fiscal 2022, ended Jan 31, with revenue jumping a 55% year over year to $4.1 billion. Net income doubled to $1.37 billion as demand for its videoconferencing services went through the roof when numerous businesses scrambled to digitize and work remotely.
However, as the first quarter of fiscal 2023 rolled in, it became apparent that Zoom could not keep up with its hot growth streak. Revenue increased by just 12% year over year to $1.07 billion, a sharp drop from the prior year when revenue nearly tripled.
To make matters worse, operating income fell by 17.3% year over year, despite the revenue rise, due to higher expenses for sales and marketing, and research and development. Net income plunged by 34% year over year after adjusting for losses on investments.
Zoom's guidance for its second quarter and full fiscal 2023 also did nothing to quell investors' fears over slowing growth. Revenue for the second quarter is expected to reach $1.12 billion, up just 9.2% year over year, a stark difference from the 54% year-over-year revenue jump in the second quarter of 2022. For the current fiscal year, revenue is projected to be $4.54 billion, up just 10.7% year over year.
These numbers imply that growth is sharply moderating from the highs seen during the pandemic as economies reopen and more businesses shift to hybrid work, rather than remote work.
Now what
Investors can take comfort in Zoom's customer numbers, though. Enterprise customers rose 24% year over year for the latest first quarter with a high net-dollar expansion rate of 123%. Customers are also spending more, with the number of customers spending over $100,000 in the trailing 12 months surging 46% to 2,916. The company might be growing more slowly than before, but the important thing is that it's retaining its customers and seeing them spend more.
Zoom is also working to improve its platform. It recently acquired Solvvy to boost its contact center to target an $18 billion market by 2026, and it launched a packaging and translation feature called Zoom One.
