Shares of video-collaboration company Zoom Video (NASDAQ: ZM) are down over 4% in early market trading today after it issued weaker-than-expected guidance for the fiscal year 2023 (ending in January).
In fiscal Q3 of 2023, Zoom Video reported revenue of $1.10 billion with adjusted earnings of $1.07 per share. Comparatively, analysts estimated Zoom to post revenue of $1.10 billion and adjusted earnings of $0.84 per share in the quarter that ended in October.
Zoom now expects revenue in fiscal 2023 to range between $4.37 billion and $4.38 billion, marginally lower compared to analyst forecasts of $4.4 billion. Its adjusted earnings are estimated at $3.91 per share, again lower than consensus estimates of $3.94 per share.
ZM stock price is currently trading almost 90% below all-time highs, valuing the company at $22.6 billion by market cap.
Let’s see if ZM stock can stage a comeback in the next 12 months and outpace the broader markets going forward.
Zoom stock price has been impacted by slowing revenue growth
The COVID-19 pandemic allowed Zoom to increase sales from just $622 million in fiscal 2020 to $2.65 billion in fiscal 2021 and $4.09 billion in fiscal 2022 as the work-from-home trend accelerated rapidly.
However, since peaking in October 2020, Zoom’s stock price has grossly underperformed the market and is down 50% year to date, wiping off significant investor wealth.
In Q3, its sales rose by just 5% year over year, while in the second quarter, revenue growth stood at 8%. Its net income also slumped to $48.4 million compared to a net income of $340 million in the year-ago period.
Zoom is currently wrestling with the triple whammy of the reopening of economies, an increase in competition from giants, including Microsoft (NASDAQ: MSFT), and an extremely challenging macro-economy.
So, more meetings are now taking place in person, and those happening online are now occurring on several other platforms, such as Microsoft Teams.
Zoom ended the quarter with 209,300 enterprise customers, up from 204,100 customers in the previous quarter. While Zoom claims it continues to maintain market share, new deal wins are taking much longer to close.
Zoom also attributed a strong U.S. dollar to its lower guidance for 2023 and expects sales to grow by 5% year over year in Q4. The company’s management did not provide any guidance for the next fiscal and maintained they are now prioritizing investments thoughtfully.
What next for ZM stock price and investors?
Yes, Zoom is impacted by slowing top-line growth, but its balance sheet remains strong, with a cash balance of more than $5 billion. It recently acquired an artificial intelligence-powered chat-based system and continues to allocate resources toward the development of new products, including a digital phone platform.
During its Investor Day presentation this year, Zoom forecasted its addressable market to expand to $125 billion in 2026, up from $34 billion in 2019, providing the company with enough room to re-accelerate revenue growth in the future.
Zoom also maintained its customers that generate more than $1 million in annual recurring revenue now stand at close to 250, up from 27 three years ago. Further, customers with an ARR of more than $100,000 has increased almost 5x from 700 to 3,286.
Zoom is now eyeing international expansion to drive sales higher while also planning to release new features that include Zoom Mail and Zoom Calendar. These new features should translate into robust sales numbers, especially if they can gain traction among enterprises.
Valued at 5x forward sales and 21x forward earnings, Zoom is not too expensive and might gain pace once market sentiment improves.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.