Zoom shares trade lower after-hours despite better than expected results as gross margins contract
Shares of Zoom Video are down after-hours even though the company registered a beat on its Q3 earnings and revenue while revised its FY21 guidance higher.
Q3 RESULTS TOP CONSENSUS, GUIDANCE REVISED HIGHER: Zoom Video reported a non-GAAP Q3 earnings of 99c, beating consensus expectations of 76c, with revenue of $777.2M exceeding the Street's view of $693.95M. The company also guided its Q4 EPS in a range of 77c-79c and a revenue of $806M-$811M - exceeding consensus view of 66c and $730.11M respectively. The better than expected results and the outlook for next quarter contributed to an upward revision in Zoom's FY21 guidance, as the company boosted its FY21 EPS view to $2.87-$2.97 from $2.40-$2.47
and its revenue view to $2.575B-$2.58B from $2.37B-$2.39B. Consensus estimates for FY21 stood at $2.55 for earnings per share and $2.41B for revenue. Zoom Video had raised its FY21 guidance with each reporting period from the initially set 42c-45c in early March, to $1.21-$1.29 with the release of its Q1 results in June, and to $2.40-$2.47 in August.
LARGE CUSTOMER GROWTH STABLE: Zoom Video disclosed that at the end of Q3, the company had 1,289 customers contributing over $100K in trailing 12-month revenue, accounting for growth rate of 136% relative to Q3 of 2019. In Q2, Zoom's comparable customer count was at 988 with annual growth rate of 112%. Similarly, Zoom's reported customer count with over 10 employees in Q3 was up 485% from last year to 433,700 vs. Q2's growth rate of 458%.
GROSS MARGINS TO REMAIN PRESSURED INTO 2021: In its conference call, Zoom Video CFO Kelly Steckelberg disclosed that the company's non-GAAP gross margin in Q3 retreated to 68.2%, contracting from 82.9% in Q3 of last year and from 72.3% in Q2 of FY21. Steckelberg attributed the decline in part to the "dramatic increase in usage related to the pandemic" as the company experiences a higher percentage of free users, particularly with educational institutions returning to school. The CFO added that it remains unclear for how long Zoom's gross margins will be impacted, though she expects the margin levels to be "consistent with Q3 into the next fiscal year before starting to improve toward our long-term target". Recall that on October 14th, Zoom management refined its long-term gross margin projections to "about 80%" from 80%-82% prior view as part of its ZoomTopia Analyst Day presentation.
PRICE ACTION: At the completion of after-hours trading, Zoom Video shares were down 5.1% or $24.56 at $453.80. The decline is a stark comparison next to the 35% opening spike higher in the stock price after the company reported its Q2 results on August 31st.