Zoom sales growth slows as online business slumps in post-pandemic era

Zoom sales growth slows as online business slumps in post-pandemic era

As organisations continue to push for the return of in-person work, Zoom’s earnings show the vendor has challenges in the post-pandemic business landscape, even as enterprise sales stay steady.

Credit: Dreamstime

Zoom's third quarter results show that the big question for the company is whether sales to enterprises will be strong enough to compensate for slowing growth of online, or consumer, revenue as businesses bring workers back to the office in the wake of the pandemic.

Zoom's third-quarter 2022 revenue, announced Monday, rose five per cent year-over-year to $1.1 billion, but in the previous quarter, total revenue grew eight per cent.

Third quarter enterprise revenue was $614.3 million, up 20 per cent year-over-year. However, online revenue was down nine per cent year-over-year, totalling $487.6 million. The decline in online sales along with growing expenses led to a 23 per cent drop, to $66.5 million, in net income from operations.

Zoom lowered its sales forecast for the entire year to a maximum of  $4.38 billion, down from its prior estimate of as much as $4.4 billion. Zoom's share price declined by 7.7 per cent in Tuesday morning trading.

Speaking to analysts on a conference call after the results were posted, Zoom CFO Kelly Steckelberg said that the company had strong growth in Zoom Phone coupled with contributions from Zoom Rooms and other products, and expected enterprise customers to comprise an increasingly higher percentage of total revenue over time.

In the transcript posted on Seeking Alpha, Steckelberg said Zoom has “approximately 209,300 Enterprise customers, up 14 per cent from the same quarter last fiscal year.”

During the first year of the COVID-19 pandemic, Zoom saw its revenue increase by 300 per cent, as workers across the globe were forced to abandon their offices and communicate with colleagues via video call. While hybrid and remote work remains a reality for a large percentage of workers, the return to in-person working has seen Zoom’s stock lose more than 85 per cent of its value since peaking in October 2020.

As a result, the company has tried to pivot away from being defined exclusively as a videoconferencing platform, with founder and CEO Eric Yuan telling analysts on the third-quarter conference call that the company has “launched more than 1,500 features and enhancements on the Zoom platform this year, advancing how people connect with each other, their organization and their customers.”

However, he cautioned that even though the company has been celebrating its innovations, it still faces the backdrop of a “challenging macroeconomic environment” in addition to “FX [foreign exchange] pressure and heightened deal scrutiny for new business.”

The strong dollar this year has lowered the value of product sales in euros and other currencies for US-based technology companies, which has had a negative impact on their financial results.

In recent months, other tech companies have sought to cut operating costs after posting poor financial results by laying off large numbers of employees. While Zoom has not announced any job cuts, on the same call with analysts, Steckelberg said that was the company looks towards FY 2024, it would be making fewer hires.

“We have grown our expenses and we have hired a lot this year, and so [Zoom is] being very thoughtful about ensuring that [those resources] are focused on the right things,” she said.

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