Zoom Fails to Impress Post the Pandemic

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According to a recent report, the global video conferencing market is expected to grow 12.5% annually over the next few years to reach $19.73 billion by 2030. Zoom Video Communications (Nasdaq: ZM) had enjoyed a stellar run during the pandemic, but with markets opening up, the company faces a significant challenge in maintaining growth forecasts.

Zoom’s Financials

Revenues for the second quarter grew 8% to $1.10 billion, falling short of the market’s forecast of $1.12 billion. Growth for the company is slowing down. A quarter ago, it had recorded 12% growth in revenues. Excluding items, Zoom reported an EPS of $1.05, which beat the analysts’ estimate of $0.94.

Among key metrics, its enterprise customers grew 3% to 204,100. Enterprise customers brought in 54% of the company’s revenues for the quarter.

Zoom lowered its forecast for the year. It now expects revenues of $4.385-$4.395 billion and an EPS of $3.66-$3.69 for the year. A quarter ago, it had forecast revenues of $4.530-$4.550 billion and an EPS of $3.70-$3.77 for the year. The market was looking for revenues of $4.54 billion and an EPS of $3.76.

Zoom’s Recovery Plan

Zoom clearly benefited significantly from the remote working conditions created by the pandemic. As global economies have opened up and several organizations have gone back to traditional brick and mortar working models, Zoom’s growth has shrunk. Additionally, competition from other enterprise communication services providers such as Microsoft Teams, Cisco Webex remains intense. Zoom is trying to counter this slowdown by announcing new pricing and platform structure.

Earlier this quarter, it released Zoom One, a new offering that integrates chat, phone, meetings, whiteboard, and other tools into secure and scalable packages. Zoom also launched a new translated and multi-language captions feature. The translations are available between English and 10 additional languages, or from any of the 10 languages to English. The bi-directional translations are available in the following languages: Chinese (Simplified), Dutch, English, French, German, Italian, Japanese, Korean, Russian, Spanish, and Ukrainian.

Zoom One offers multiple pricing tiers based on the business requirements. Zoom One Basic is its free offering that provides free 40-minute Zoom Meetings for up to 100 attendees, persistent Zoom Chat for team messaging, limited Zoom Whiteboard for synchronous and asynchronous work, and real-time transcription. Premium tiers offer additional features such as unlimited meeting times, cloud recording, higher number of attendees, unlimited regional calling, the new translation feature, and Zoom Webinars. Pricing for these tiers ranges from $149.90 per user per year to $250 per user per year. Enterprise tiers receive customized pricing.

It also continues to upgrade some of its existing features. For instance, The Zoom Phone now allows companies to upload and share audio files, add an emergency number with a company’s safety team and track the usage of data. This is expected to add to the user base of Zoom Phone even further after reaching nearly 4 million seats in the second quarter this year. Zoom Meetings and Webinars are becoming more user-friendly with the interpretation of sign language, and improved notifications.

Zoom Whiteboard has also added features such as tables to organize content, mind maps to create flow charts and @mentions in the comments to directly connect to a colleague.

Despite its moves, the stock’s performance remains dismal. After having climbed to a peak of $559 during the pandemic, the stock is currently trading at $77.16 with a market capitalization of $22.95 billion. It has fallen by more than 60% since the start of the calendar year. The stock was trading at a 52-week high of $291.31 a year ago, and had fallen to a 52-week low of $71.69 earlier this month.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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