Zoom Growth Rates Slowing, Shares Fall

Zoom Video Communications (NASDAQ:ZM) shares fell Tuesday after the company reported fiscal third-quarter earnings and quarterly guidance that exceeded analysts’ expectations. Investors seemed disappointed that the rate of revenue growth, which has accelerated this year, could moderate.

With the coronavirus pandemic continuing to drive people to Zoom for work, school and family meetings, Zoom’s revenue grew 367% on an annualized basis in the quarter, which ended Oct. 31, according to a statement. In the previous quarter revenue increased 355%, and in the quarter before that, revenue had risen 169%.

Zoom’s gross margin declined to 66.7% from 67.3% in the previous quarter. During the quarter Zoom dealt with a higher mix of free users, including students and teachers who logged in as school resumed. That impacted gross margin, as did Zoom’s higher-than-usual reliance on public cloud resources, Kelly Steckelberg, the company’s chief financial officer, said during a Zoom webcast with analysts. Eric Yuan, Zoom’s founder and CEO, was not able to join the webcast, due to "a personal conflict."

More than 80% of the fiscal third-quarter revenue gain came from new customers’ subscriptions. Revenue in the Asia Pacific and Europe, Middle East and Africa grew 629%, compared with over 300% growth in the Americas, Steckelberg said.

Zoom said in the quarter it had about 433,700 customers with over 10 employees, up 485% year over year, higher than the 355% growth from the prior quarter.

ZM shares collapsed $64.27, or 13.4%, to $414.09.