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Zoom Stock Tumbles As Slowing Sales Growth Clouds Solid Q2 Earnings Beat

"Most of us are probably socializing in person now, doing fewer things like Zoom Happy Hours, and that's where we are starting to see some of the challenges," said CFO Kelly Steckelberg.

Zoom Video Communications  (ZM) - Get Zoom Video Communications, Inc. Class A Report shares fell sharply Tuesday after the online conferencing group said its current quarter revenues would likely slow as smaller companies return to office-based work and schools transition to full-time lessons.

Zoom topped Street forecasts with its second quarter earnings report, notching a bottom line of $1.04 per share on record revenues of $1.02 billion, but said the growth rate of sales going forward would slow significantly from pandemic-peak levels.

Looking into the back half of the year, Zoom said it sees third quarter revenues of between $1.015 billion and $1.020 billion, implying a year-on-year growth rate of around 31.2%, well shy of the 54% second quarter pace and the 191% gain booked over the first three months of the year. 

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"Our outlook is based on our current assessment of the business environment. Specifically, our outlook assumes that our direct and channel business will continue to experience robust growth while our online business will be a headwind in the coming quarters as smaller customers and consumers adjust to the evolving environment." CFO Kelly Steckelberg told investors on a conference call late Monday. 

"Remember the online business is primarily, not exclusively but primarily small business and individual, and I think what we've seen is the future of Delta is still unknown, unknown, we do see individuals especially moving around the world and feeling comfortable," she added. "I think we were talking about most of us are probably socializing in person now, doing fewer things like Zoom Happy Hours, and that's where we are starting to see some of the challenges."

Zoom Video shares were marked 16% lower in early trading Tuesday to change hands at $291.25 each, a move that would tip the stock into negative territory for the year.

"Zoom reported a mixed quarter, slightly beating consensus estimates but finally showing signs of normalization in growth and guiding below consensus," said Oppenheimer analyst Ittai Kidron, who carries a 'market perform' rating on the stock. "The company is seeing an uptick in customer churn in the <10 employee cohort, with headwinds expected to persist through the year."

"Positively, we're encouraged by the strong adoption in Zoom Phones, with total deployments doubling since the start of the year, and we see several long-term growth opportunities (Phones, Events, Appliances) supporting Zoom's prospects in a post-pandemic world," Kidron added. "We believe the next 2–3 quarters could present challenges as a new usage "steady state" is established, and we expect the shares to come under pressure in the near-term as shareholders realign their expectations."