Zoom Fatigue Sets In Early -- Heard on the Street
01 December 2020 - 12:05PM
Dow Jones News
By Dan Gallagher
Zoom Video Communications' winter won't be one of discontent.
Spring might be another story.
The videoconferencing provider that has become an investor
darling during the pandemic posted another blowout quarterly report
Monday afternoon. Revenue more than quadrupled on a year-over-year
basis to $777 million for the fiscal third quarter ended Oct. 31,
exceeding the company's already-robust projection by 13%. Zoom also
projected similar growth for its fourth quarter ending in January
and expects to close out the fiscal year with operating earnings
between $865 million and $870 million. It made about $12.7 million
the previous year.
But unlike the cheering that accompanied Zoom's blowout numbers
three months ago, investors took this report badly. The stock
slipped 5% following the results in after-hours trading. Gross
margins slipped 4 percentage points from the second quarter, due in
part to growing public cloud costs to accommodate booming demand.
Walter Pritchard of Citi also noted "buy side expectations" that
had projected revenue north of $800 million for the third quarter
as a reason for the letdown.
The reaction could have been anticipated for a stock that has
boomed more than 600% this year -- well ahead of even other
pandemic-hyped names such as Peloton. It also reflects the
challenges Zoom is likely to face heading into next year. Recent
vaccine breakthroughs suggest strongly that life will begin
returning to something like normal by spring. Businesses -- still
Zoom's core market -- will no doubt continue to make robust use of
videoconferencing services well into the future. But Zoom noted
Monday that a "significant percentage" of recent usage comes from
both free and paid users from the education sector, which means
kids returning to school will create a drag on the company's
growth.
Longer term, Zoom's lofty valuation of more than 47 times
forward sales will also put the company under some pressure to show
what other tricks it has up its sleeve once the day comes that
people can actually drink, work out and study in person again.
Zoom's stated mission is to deliver happiness. As the next year
proceeds, though, happiness for a growing number of people will
mean a lot less Zoom.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
November 30, 2020 19:50 ET (00:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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