Zoom AI Companion Efforts Fuel Earnings Beat, Stock Surge
Zoom stock is rallying after the company reported solid earnings thanks to demand for its AI-powered collaboration tools. Here's what you need to know.
Zoom Video Communications (ZM) stock is soaring Thursday after the video conferencing company reported higher-than-expected results for its second quarter and raised its full-year outlook.
In the three months ended July 31, Zoom's revenue was up 2.1% year-over-year to $1.2 billion, driven by a 3.5% increase in enterprise revenue to $682.8 million. Its earnings per share (EPS) rose 3.7% from the year-ago period to $1.39.
"In Q2, we outperformed our guidance across the board and grew operating cash flow and free cash flow by 33.7% and 26.2% year over year, respectively, demonstrating our continued commitment to efficient growth," said Zoom CEO Eric Yuan in a statement. "We also saw strength in large accounts, with customers contributing more than $100,000 in trailing 12 months revenue increasing by 7.1% year over year, and resilience in our online business, with online average monthly churn reaching its lowest ever rate."
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The company also said that its Zoom AI Companion – its generative artificial intelligence (AI) assistant that's included in paid services – reached 1.2 million accounts at the end of Q2.
In the earnings call, Yuan said that Zoom is "just getting started" on its AI strategy and that Wall Street can expect to hear more at its annual Zoomtopia event in October.
Zoom's top and bottom-line results topped analysts' expectations. Wall Street was anticipating revenue of $1.15 billion and earnings of $1.21 per share, according to Reuters.
As a result of its outperformance in the second quarter, Zoom raised its full-year outlook. The company now anticipates revenue in the range of $4.63 billion to $4.64 billion and EPS to arrive between $5.29 to $5.32. This compares to its previous outlook of revenue in the range of $4.61 billion to $4.62 billion and earnings per share of $4.99 to $5.02.
For the third quarter, Zoom sees revenue of $1.16 billion to $1.165 billion and EPS between $1.29 to $1.31.
The midpoints of these outlooks beat analysts' expectations of revenue of $1.16 billion and earnings of $1.24 per share, according to Yahoo Finance.
Zoom also said its chief financial officer is leaving the company.
Is Zoom stock a buy, sell or hold?
Zoom has struggled on the price charts in 2024, down nearly 7% even with today's pop. Wall Street is bullish on the tech stock, but barely. The average analyst price target at S&P Global Market Intelligence is $75.29, representing implied upside of more than 15% to current levels. And the consensus recommendation is a Buy, though with low conviction.
Financial services firm Needham is one of those that is not in the bull camp and currently rates Zoom stock a Hold.
Zoom "is in a strong position thanks to its brand ascent and revenue acceleration during 2020-21, which were significantly boosted by the pandemic," says Needham analyst Ryan Koontz. "While we commend the ZM team for their flawless execution during this period, we are concerned that growth at the lower end, particularly in the online segment, outpaced the company's mid-market and enterprise expansion."
The analyst adds that increased churn at the lower end of the market is creating headwinds before new product sales reach scale. "Although Phone is off to a solid start, we await evidence that other new Zoom products will contribute to meaningful growth," Koontz says.
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