Video conferencing platform Zoom (NASDAQ: ZM) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 3.3% year on year to $1.18 billion. On the other hand, next quarter’s revenue guidance of $1.16 billion was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP profit of $1.41 per share was 4.6% above analysts’ consensus estimates.
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Zoom (ZM) Q4 CY2024 Highlights:
- Revenue: $1.18 billion vs analyst estimates of $1.18 billion (3.3% year-on-year growth, in line)
- Adjusted EPS: $1.41 vs analyst estimates of $1.35 (4.6% beat)
- Adjusted Operating Income: $468 million vs analyst estimates of $456.4 million (39.5% margin, 2.5% beat)
- Management’s revenue guidance for the upcoming financial year 2026 is $4.79 billion at the midpoint, missing analyst estimates by 1% and implying 2.7% growth (vs 3.1% in FY2025)
- Adjusted EPS guidance for the upcoming financial year 2026 is $5.36 at the midpoint, missing analyst estimates by 3.7%
- Operating Margin: 19%, up from 14.7% in the same quarter last year
- Free Cash Flow Margin: 35.2%, down from 38.9% in the previous quarter
- Customers: 4,088 customers paying more than $100,000 annually
- Net Revenue Retention Rate: 98%, in line with the previous quarter
- Market Capitalization: $25.29 billion
“In FY25, Zoom AI Companion emerged as the driving force behind our transformation into an AI-first company, enabling our customers to discover enhanced productivity opportunities. As Zoom AI Companion becomes increasingly agentic, we look forward to continuing to help our customers fully realize the benefits of AI and discover what’s possible with AI agents,” said Eric S. Yuan, Zoom's founder and CEO.
Company Overview
Started by Eric Yuan who once ran engineering for Cisco’s video conferencing business, Zoom (NASDAQ: ZM) offers an easy to use, cloud-based platform for video conferencing, audio conferencing and screen sharing.
Video Conferencing
Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Regrettably, Zoom’s sales grew at a weak 4.4% compounded annual growth rate over the last three years. This fell short of our benchmark for the software sector and is a tough starting point for our analysis.
This quarter, Zoom grew its revenue by 3.3% year on year, and its $1.18 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a slight deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Customer Retention
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Zoom’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 100% in Q4. This means Zoom would’ve grown its revenue by 0.2% even if it didn’t win any new customers over the last 12 months.
Despite falling over the last year, Zoom still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.
Key Takeaways from Zoom’s Q4 Results
Revenue was just in line, but EPS managed to exceed expectations. On the other hand, Zoom's full-year revenue and EPS guidance both missed Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.3% to $79.15 immediately after reporting.
Zoom underperformed this quarter, but does that create an opportunity to invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
