Zoom Video Communications (ZM 1.57%) stock gained 3.8% in Monday's after-hours trading, following the cloud-based communications company's release of its results for the second quarter of fiscal 2024 (ended July 31).
The stock's rise is attributable to the quarter's revenue and earnings exceeding Wall Street's consensus estimates and management increasing its annual guidance on the top and bottom lines.
Here's a look at Zoom's quarter and guidance centered around five key metrics.
1. Revenue rose 3.6%
For fiscal Q2, Zoom's revenue increased 3.6% year over year (and 4.5% in constant currency) to $1.14 billion. This result was higher than the $1.11 billion analysts were expecting and the company's guidance of $1.11 billion to $1.115 billion.
Growth was driven by the company's enterprise business, whose revenue grew 10% year over year to $659.5 million. The online segment's revenue declined 4.3% to $479.2 million.
The enterprise business's year-over-year revenue growth continued its deceleration. In the first quarter, this metric was 13%, and for the full fiscal year of 2023, it was 24%.
| Customer Metric | Fiscal Q2 2024 | Change YOY |
|---|---|---|
| Enterprise customers | 218,100 | 6.9% |
| Customers contributing revenue of more than $100,000 in trailing 12 months | 3,672 | 18% |
| Net-dollar expansion rate for enterprise customers in trailing 12 months | 109% | Down from 120% in the year-ago period |
| Online segment average monthly churn | 3.2% | An improvement of 40 basis points (0.4 percentage points) |
| Percentage of online business MRR* from online customers with a continual term of service of at least 16 months | 72.8% | Up 340 basis points (3.4 percentage points) |
Data source: Zoom Video Communications. YOY = year over year. *MRR = monthly recurring revenue.
The 109% net-dollar expansion rate means that existing customers expanded their spending with the company by an average of 9% year over year.
This metric has been declining. Last quarter, it was 112%. Enterprise customers have been cautious in their spending for some time due to uncertainties in the macro environment.
2. Adjusted operating income grew 17%
Income from operations under generally accepted accounting principles (GAAP) was $177.6 million, up 46% from the year-ago period. Adjusted for one-time items, operating income landed at $461.7 million, up 17% year over year.
3. Adjusted EPS jumped 28%
GAAP net income was $182 million, or $0.59 per share, up from $0.15 per share in the year-ago period. Adjusted net income came in at $409.6 million, or $1.34 per share, up 28% year over year.
Wall Street had been looking for adjusted earnings per share (EPS) of $1.05, so the company easily surpassed this profit expectation. It also beat its own guidance of $1.04 to $1.06 per share.
4. Operating cash flow surged 31%
The quarter's operating cash flow increased 31% year over year to $336 million. Free cash flow grew 26% to $229.4 million.
Zoom's balance sheet remains a strength. The company ended the quarter with $6 billion in available cash, cash equivalents, and marketable securities, and no long-term debt.
5. Fiscal 2024 adjusted EPS is now expected to rise about 6% to 7%, rather than decline about 1% to 3%
Management issued third-quarter guidance and upwardly revised its annual outlook.
| Metric | Fiscal Q3 2024 Guidance |
Fiscal Q3 2024 Projected Change YOY* |
Prior Fiscal 2024 Guidance | Current Fiscal 2024 Guidance | Fiscal 2024 Projected Change YOY* |
|---|---|---|---|---|---|
| Revenue | $1.115 billion to $1.120 billion |
1.2% to 1.6% |
$4.465 billion to $4.485 billion |
$4.485 billion to $4.495 billion |
2.1% to 2.3% |
| Adjusted EPS | $1.07 to $1.09 | Flat to 1.9% | $4.25 to $4.31 | $4.63 to $4.67 | 5.9% to 6.9% |
Data source: Zoom Video Communications. *Calculations by author.
In summary, Zoom Video Communications' report was a mixed bag. On the positive side, the quarter's adjusted EPS grew a relatively solid 13% and the company continues to generate strong cash flows. However, the continued deceleration in the enterprise business's year-over-year revenue growth is concerning. This dynamic is stemming in large part to the continued slide in this segment's net-dollar expansion rate.
