Video conferencing software provider Zoom (ZM 0.31%) generated incredible profits during the pandemic when businesses had no choice but to rapidly adopt tools that enabled remote work. While remote and hybrid work are here to stay to a degree, the urgency of the pandemic is gone. Businesses can now take their time and consider their options.

This has not been a good development for Zoom. Revenue is barely growing at all, up just 4% year over year in the fourth quarter as enterprise wins were largely offset by sky-high churn among smaller customers. Worse, profits have plummeted.

A loss or a huge profit depending on who you ask

Zoom booked a generally accepted accounting principles (GAAP) net loss of $103.7 million in Q4. This number looks a bit worse than it really is. There was a $208 million stock-based compensation charge related to the sunsetting of Zoom's supplemental grant program. If this one-time charge were backed out, Zoom would have reported a GAAP net income of around $100 million.

Still, that's not a good result. In the fourth quarter of the previous fiscal year, Zoom managed a GAAP net income of $490.5 million. Even after the adjustment, Zoom's bottom line plunged by nearly 80% year over year. For the full fiscal year, Zoom's net income plus that one-time charge was somewhere around $310 million, down from $1.38 billion in fiscal 2022.

Zoom's $21.5 billion market cap looks outrageous relative to its paltry GAAP net income. The price-to-earnings (P/E) ratio, based on this adjusted full-year figure, is right around 70. For a company that's barely growing and seeing its margins rapidly contract, that seems pretty expensive.

Like many software companies, Zoom would rather you ignore GAAP earnings and instead focus on its non-GAAP figures. In what has become standard practice, Zoom backs out all of its stock-based compensation, as well as some other items, to arrive at a much larger adjusted profit number. Zoom reported non-GAAP net income of $366.5 million in Q4 and $1.33 billion for the full fiscal year, each down slightly from their respective prior-year periods.

A pricey stock

These non-GAAP figures are meaningless. Stock-based compensation may not be a cash cost, but it is a real cost. Ignoring it entirely yields a metric that represents nothing. Free cash flow has the same problem. Zoom generated $1.19 billion of free cash flow in fiscal 2023, but that metric would have been negative if not for the add-back of stock-based compensation.

Zoom's non-GAAP metrics are particularly egregious because the company spent $1 billion in fiscal 2023 buying back its own shares to offset the dilution from all this stock-based compensation. The diluted share count did decline, but a big chunk of this spending effectively turned a non-cash expense into a cash outlay.

Even taking Zoom's non-GAAP earnings at face value, which you shouldn't do, the stock is still far from cheap. The company's guidance calls for non-GAAP earnings per share as high as $4.18 in fiscal 2024, along with barely any revenue growth. The P/E ratio based on this guidance is 18. That's not exactly a bargain.

Growth is going to be hard to come by for Zoom as it navigates this post-pandemic environment. The company's margins will probably never fully recover. That's not to say that Zoom can't stabilize its bottom line and become a solid, sustainably profitable software company. But it's not there yet, and the stock price doesn't leave much room for error.