Zoom Video Communications(NASDAQ: ZM) stock gained 10.4% in Monday's after-hours trading following the cloud-based communications company's release of its results for the fourth quarter of fiscal 2024 (ended Jan. 31).
The stock's rise is largely attributable to the quarter's revenue and earnings exceeding Wall Street's consensus estimates, with bottom-line guidance for both the first quarter and full year of fiscal 2025 coming in higher than analysts had been expecting. The company's powerful cash flows and $1.5 billion share buyback authorization also probably provided a tailwind to the stock.
Below is a look at Zoom's Q4 results and guidance centered around five key metrics.
1. Revenue edged up 2.6%
In fiscal Q4, Zoom's revenue rose 2.6% year over year (and 2.7% in constant currency) to $1.147 billion. This result was higher than the $1.13 billion analysts were expecting and the company's guidance range of $1.125 billion to $1.130 billion.
Growth was driven by Zoom's enterprise business, whose revenue increased 4.9% year over year to $667.3 million. The online segment's revenue inched down 0.5% to $479.2 million.
The enterprise business's year-over-year revenue growth continued to decelerate. In Q1, Q2, and Q3 of fiscal 2024, this metric was 13%, 10%, and 7.5%, respectively.
Customer Metric
Fiscal Q4 2024
Change YOY
Enterprise customers
220,400
3.5%
Customers contributing revenue of more than $100,000 in trailing 12 months
3,810
9.8%
Net-dollar expansion rate for enterprise customers in trailing 12 months
101%
Down from 115% in the year-ago period
Online segment average monthly churn
3%
An improvement of 40 basis points (0.4 pp)
Percentage of online business MRR* from online customers with a continual term of service of at least 16 months
74.2%
Up 220 basis points (2.2 pp)
Data source: Zoom Video Communications. Fiscal Q4 2024 ended Jan. 31. YOY = year over year. *MRR = monthly recurring revenue. pp = percentage point.
The 101% net-dollar expansion rate for enterprise customers means that existing enterprise customers expanded their spending with the company by an average of 1% year over year. This is a subpar result. This metric declined throughout fiscal 2024, with Q1, Q2, and Q3 results of 112%, 109%, and 105%, respectively.
That said, uncertainties in the macro environment caused many enterprise customers to cut back on their spending over the last year-plus. The macro situation has improved in calendar year 2024, so the company's net-dollar expansion rate for fiscal 2025 should give a clearer picture of how much enterprises value Zoom's offerings.
The 9.8% year-over-year growth in customers contributing revenue of more than $100,000 in the last year is encouraging.
2. Adjusted operating income grew 9.6%
Income from operations under generally accepted accounting principles (GAAP) was $168.5 million, up from a loss of $129.9 million in the year-ago period. Adjusted for one-time items, operating income landed at $443.7 million, up 9.6% year over year.
3. Adjusted EPS jumped 16%
GAAP net income was $298.8 million, or $0.95 per share, up from a net loss of $104.1 million, or $0.36 per share, in the year-ago period. Adjusted net income came in at $444.0 million, or $1.42 per share, up 16% year over year.
Wall Street had been looking for adjusted earnings per share (EPS) of $1.15, so the company raced by this expectation. It also sprinted by its own guidance of $1.13 to $1.15 per share.
4. Operating cash flow surged 66%
The quarter's operating cash flow surged 66% year over year to $351.2 million. Free cash flow soared 82% to $332.7 million.
Zoom's balance sheet remains hardy. The company ended the quarter with $7.0 billion in available cash, cash equivalents, and marketable securities, and no long-term debt.
5. Fiscal 2025 adjusted EPS is expected to decline about 7% to 6%
Management issued guidance for the first quarter and full year of fiscal 2025 (ends late January 2025).
Metric
Fiscal Q1 2025 Guidance
Fiscal Q1 2025 Projected Change YOY*
Full-Year Fiscal 2025 Guidance
Fiscal 2025 Projected Change YOY*
Revenue
$1.125 billion
1.8%
$4.6 billion
1.6%
Adjusted EPS
$1.18 to $1.20
15% to 17%
$4.85 to $4.88
(6.9%) to (6.3%)
Data source: Zoom Video Communications. *Calculations by author.
Going into the release, Wall Street had been modeling for Q1 revenue and adjusted EPS of $1.13 billion and $1.13, respectively. So, Zoom's revenue guidance came very close to the consensus estimate, while its profit outlook was notably better than it.
And for full-year fiscal 2025, analysts had been expecting revenue and adjusted EPS of $4.65 billion and $4.71, respectively. So, the company's revenue outlook came in a bit lighter than expected, while its bottom-line guidance surprised to the upside.
A mixed bag
As with last quarter, Zoom Video Communications' report was a mixed bag. The positives continued to include solid adjusted EPS growth and robust cash flows. On the other hand, as I wrote last quarter, "For the company to grow profits over the long term, it will need to halt and reverse the year-over-year deceleration in the enterprise business's revenue growth, which stems largely from the declining net-dollar expansion rate."
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BA McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.
