Zoom Stock Soars on Strong Earnings and Cash Flows Despite Slowing Enterprise Growth

Zoom Video Communications' shares saw a notable increase of over 10% in after-market trading, driven by a financial performance that surpassed analysts' expectations. This surge came on the heels of the company's fourth quarter earnings report for fiscal year 2024, which closed on January 31st.

Quarterly Financial Highlights

In an unexpected turn, Zoom reported an adjusted profit and showcased a continued ability to generate solid cash flows. The quarter's revenue saw a 2.6% increase from the previous year, amounting to $1.147 billion—topping the anticipated $1.13 billion. Zoom's growth was attributed to its enterprise business, which despite a slowdown in revenue increase, climbed 4.9% to reach $667.3 million. Nonetheless, the online segment's revenue dipped slightly by 0.5%, coming in at $479.2 million.

Adding to investor optimism, Zoom revealed plans for a $1.5 billion share buyback and posted an upbeat bottom-line guidance for the first quarter and the entirety of fiscal 2025, which were both more optimistic than the market consensus.

Earnings Details and Business Performance

Zoom shared positive results in some key metrics. The company's adjusted operating income expanded by 9.6%, while the adjusted earnings per share (EPS) jumped 16%. Cash flows also saw impressive growth, with operating cash flow up by 66% and free cash flow soaring 82%. With these results, Zoom ended the quarter with a strong balance sheet featuring $7.0 billion in cash and securities, with no long-term debt.

However, not all was rosy. The enterprise business's year-over-year revenue growth is decelerating, a trend that is causing some concern. Additionally, the net-dollar expansion rate for enterprise customers has dropped to 101%, signifying only a 1% increase in spending from this segment. This rate represents a decrease from previous quarters and highlights the challenges Zoom faces in a shifting macroeconomic environment.

Outlook for Fiscal 2025

Looking ahead, the company provided guidance for a slight decline in its adjusted EPS for fiscal 2025, suggesting a 6% to 7% decrease. Management remains cautiously optimistic, as the improving macro situation could lead to better enterprise spending habits in the upcoming year.

Despite these mixed results, the substantial year-over-year growth in customers contributing more than $100,000, and an improved online segment churn rate point to a resilient core business. These factors, combined with Zoom's continued focus on capital return through buybacks, may provide the strategic leverage needed to navigate through the deceleration in enterprise growth.

Zoom, Earnings, Stock