Zoom Video Communications Inc. gave a revenue forecast for the current quarter that topped analysts’ estimates but suggested a slight decline in its explosive growth, touching off concerns among investors that the software maker’s pandemic boom may be coming to an end. Shares declined about 5% in extended trading.
Revenue will be as much as $811 million in the period that ends in January, the San Jose, California-based company said Monday in a statement. Analysts, on average, projected $719 million. The company’s sales guidance, at the high end, estimates a 330% increase from a year earlier — a slight decline in the year-over-year growth from the previous two quarters.
Zoom’s projected slowing revenue expansion in the current period highlights investors’ concerns that 2021 won’t be as favorable for the software maker as this year, when the company gained customers forced to work and go to school remotely. Zoom’s stock has jumped sevenfold thus far in 2020, heightening questions about whether the company is overvalued. Wall Street has fawned over the company for its accelerating sales growth, but analysts have raised questions about how long it might last.
Investors also may be disappointed by cost issues. The company reported adjusted gross margin of 68.2% in the fiscal third quarter, compared with 82.9% in the same period a year earlier and 72.3% in previous period. Analysts had expected 71.8%. Zoom said the margin decline was due to expenses associated with public cloud services and supporting non-paying users. Executives said investors should expect similar numbers into the next fiscal year before the gross margin starts to improve.
Zoom said sales increased 367% to $777.2 million in the quarter, which ended Oct. 31. Profit, excluding some items, was 99 cents a share. Analysts projected revenue of $693.4 million and adjusted profit of 75 cents.
Zoom’s stock has become a barometer of the pandemic economy, rising when Covid-19 lockdowns emerge and falling on good news about vaccines. Chief Executive Officer Eric Yuan has tried to diversify Zoom’s capabilities for large enterprises, small- and mid-sized businesses and individuals so the company can grow after the coronavirus is controlled and greater numbers of workers return to their offices. The software maker in October announced OnZoom, a platform for hosting paid classes, lessons and charity events. It also debuted Zoom Apps, a way to more tightly integrate Zoom with other applications used during video conferences.
Zoom named Amazon Web Services its preferred cloud provider, the Amazon.com Inc. unit said in a statement after Zoom’s results. The companies have been partners since 2011, but Zoom has recently begun using Oracle Corp.’s cloud as well. Separately, Zoom said that it would spend more on capital expenditures in the current period to boost its own data center capacity. Such a move could pare back the company’s reliance on cloud services.
Zoom said it had 433,700 customers with more than 10 employees at the end of the quarter and 1,289 contributing more than $100,000 in trailing 12-month revenue. Both figures topped analysts’ average estimates, according to data compiled by Bloomberg.
“We remain focused on the communication needs of our customers and communities as they navigate the current environment and adapt to a new world of work from anywhere using Zoom,” Yuan said in the statement.