Zoom lifts revenue forecasts as paying customers take advantage of AI tools

Derek du Preez Profile picture for user ddpreez November 21, 2023
Digital communications platform Zoom beat its guidance and upped its forecasts, but investors are still cool on its soft growth.

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(Image by Alexandra_Koch from Pixabay )

Zoom delivered a solid set of Q3 2024 results, with both its enterprise and larger customers spending more with the digital communications platform. The company said that the introduction of its AI Companion tool for paying customers, which helps users carry out tasks that include composing chat responses and asking questions about the content of a meeting, is proving significant and will help with retention rates over the long term. 

Speaking with analysts this week, Zoom said that it beat its guidance for the quarter and raised its full year revenue forecast, which initially boosted its share price in after hours trading. However, questions remain about the company’s long-term growth prospects, which have softened since the rapid acceleration of its customer base during the COVID-19 pandemic. To be explicit, Zoom hit $1 billion in quarterly revenues back in 2021, but is still lingering close to that number today. 

That being said, there are good indications that the company is making progress where it matters: with its enterprise customers and those spending more than $100,000 in ARR. 

The key figures for the quarter include: 

  • Total revenue for the third quarter was $1,136.7 million, up 3.2% year over year. 

  • Enterprise revenue was $660.6 million, up 7.5% year over year, and Online revenue was $476.1 million, down 2.4% year over year.

  • GAAP net income attributable to common stockholders for the third quarter was $141.2 million, or $0.45 per share, compared to GAAP net income attributable to common stockholders of $48.4 million, or $0.16 per share in the third quarter of fiscal year 2023

Key customer metrics include: 

  • Approximately 219,700 Enterprise customers, up 5.0% from the same quarter last fiscal year

  • A trailing 12-month net dollar expansion rate for Enterprise customers of 105%

  • 3,731 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 13.5% from the same quarter last fiscal year

  • Online average monthly churn of 3.0% for the third quarter, down 10 bps from the same quarter last fiscal year

Looking ahead, the company also raised its full-year revenue forecast to between $4.506 billion and $4.511 billion, up from $4.485 billion to $4.495 billion earlier this year. 

Commenting on the results, CFO Kelly Steckelberg said: 

We are pleased that we beat our top-line and profitability guidance in Q3. Here are a few milestones: First, Zoom Phone reached approximately 7 million paid seats. Second, Zoom Contact Center reached approximately 700 customers as of quarter-end, while Zoom Virtual Agent customers nearly doubled quarter-over-quarter. 

And finally, the number of customers on Zoom One bundles that include Zoom Phone grew approximately 330% year-over-year. These proof points demonstrate our customers’ willingness to entrust us with their critical CX and EX processes, and their commitment to grow with us as we expand our platform.

The impact of AI

During the analyst call, Steckelberg and Zoom CEO Eric Yuan were keen to highlight how they see the introduction of AI tooling into the Zoom platform helping the vendor’s growth prospects in the future. Yuan said: 

Zoom AI Companion is especially noteworthy for being included at no additional cost to our paid plans, and has fared tremendously well with over 220,000 accounts enabling it and 2.8 million meeting summaries created as of today. Remarkable growth in less than three months.

I think we are very, very proud of our team's progress since it launched the Zoom AI Companion - a lot of accounts enabled that. 

One feature of that is taking a meeting summary, for example, and it's very accurate and really saves the meeting host a lot of time. 

Also, our federated AI approach really contributed to that success, because we do not count on a single AI model. 

Zoom CFO Steckelberg agreed that the company’s AI offering will be a boon for the platform down the line, particularly with retention rates. She added: 

AI is probably really going to be a key differentiator and a retention tool in the future because, as a reminder, all of the AI companion features come included for our paid users. So we're seeing it not only help with conversion, but we really believe that for the long term, it will help with retention as well.

My take

A very respectable set of earnings from Zoom, which is navigating how to deliver sustainable growth in a world that hasn’t quite found a balance yet between in-office work and working from home. Companies are still figuring out their long-term strategies for this and this will likely play into buyers’ decision making. That being said, if you look at where Zoom is seeing growth - amongst its enterprise customers - that’s a good sign. The more compelling piece will be seeing the use cases emerge from customers that are making use of Zoom’s AI tools and how/if this encourages them to invest further. It’s early days on that front and time will tell. 


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