Shares in Zoom Video Communications fell Tuesday after its April-quarter earnings handily beat estimates but weakening trends in its enterprise business spooked ZM stock investors.
Zoom earnings for the company's first quarter rose 13% to $1.16 per adjusted per share amid cost-cutting moves. Also, revenue climbed 3% to $1.105 billion. A year earlier, Zoom earned $1.03 a share on sales of $1.074 billion.
Zoom stock analysts had projected earnings of 99 cents a share on sales of $1.084 billion for the period ended April 30.
Sales growth slowed for the ninth straight quarter as the company adjusts to slower product demand in the post-coronavirus emergency era. Analysts have debated when decelerating sales will hit a bottom.
Enterprise Business Weakens
Zoom Video said first-quarter enterprise sales to corporate and institutional customers rose 13% to $632 million, topping estimates of $621 million. But recent cuts in Zoom's sales force could take a toll on that business.
"We believe investors will be focused on the Enterprise's segment revenue which is now expected to decelerate to about 6% year-over-year growth in fiscal 2024 (from 23% in fiscal 2023) due to disruption from restructuring and some macro (economic) pressure," Mizuho Securities analyst Siti Panigrahi said in a note to clients.
To reignite growth, Zoom Video aims to build a broader business communications platform using artificial intelligence tools.
Zoom reported earnings after the market close on Monday. Zoom stock fell 8.1% to close at 65.65 on the stock market today.
At UBS, analyst Karl Keirstead said in his note to clients: "In our view, the story of the quarter was the combo of the improved trajectory of the down-market online (consumer/small business) segment, which is expected to finally stabilize in Q2 after seven straight quarters of post-Covid sequential declines, and the material step-down in outlook for the Enterprise segment."
ZM Stock: Revenue Outlook Tops Views
For the current quarter ending in July, Zoom said it expects earnings of $1.05 a share at the midpoint of its outlook, in line with estimates. Further, the company predicted revenue of roughly $1.13 billion vs. estimates of $1.11 billion.
ZM stock had advanced 5% in 2023 heading into the earnings report.
The company's cloud-based software sets up video calls, with chat tools available. Shares own an IBD Relative Strength Rating of only 25 vs. a best-possible 99, according to IBD Stock Checkup.
ZM stock peaked at 588.84 in October 2020.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
