Zoom’s share price jumps on solid full-year earnings

Derek du Preez Profile picture for user ddpreez February 27, 2024
Summary:
Zoom CEO Eric Yuan talked up the customer value of AI across the vendor's cloud-based communications platform.

Image of an online video conference
(Image by Alexandra_Koch from Pixabay )

Following a surge in popularity during the COVID-19 pandemic, Zoom suffered from a dip in market expectations as employees transitioned back to a mostly hybrid work environment. However, concerns about the long-term uptake of the cloud-based communications platform seem to have eased, as Zoom plows ahead with its integrated AI strategy and as enterprise adoption continues to see growth. 

Upon release of its fourth quarter and full-year 2024 earnings this week, Zoom’s share price jumped more than 10% in extended-hours trading. The company’s share price is still significantly down on the dizzying heights it saw during the early months of the pandemic (down to approximately $71 this week from a high of $559 in October 2020), but the trend in recent weeks and months has been upwards. 

As we know, managing quarterly expectations is a fickle business and analysts and investors sometimes struggle to take a long-term view. However, diginomica has highlighted in recent reports that Zoom’s important indicators - such as enterprise sales, which typically are more lucrative - are rising steadily. 

And this week’s earning report suggests a positive outlook. Zoom reported the following numbers: 

  • Fourth quarter total revenue of $1.146 billion, up 2.6% year over year and 2.7% in constant currency; full fiscal year total revenue of $4.527 billion, up 3.1% year over year and 3.8% in constant currency

  • Fourth quarter Enterprise revenue of $667.3 million, up 4.9% year over year; full fiscal year Enterprise revenue of $2,619.3 million, up 8.7% year over year

  • Approximately 220,400 Enterprise customers, up 3.5% year over year.

  • A trailing 12-month net dollar expansion rate for Enterprise customers of 101%.

  • 3,810 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 9.8% from the same quarter last fiscal year.

  • Online average monthly churn of 3.0% for the fourth quarter, down 40 bps from the same quarter last fiscal year.

As you can see, those important metrics - such as customers spending more than $100,000 annually, enterprise buyers and the churn rate are all heading in the right direction (and are some of the best indicators of long-term success). 

AI everywhere

Speaking with analysts this week, Zoom CEO Eric Yuan spent some time discussing the vendor’s AI strategy and investments. As previously highlighted on diginomica, Zoom is aggressively pursuing a generative AI strategy, incorporating it into many segments of its platform, mostly at no additional cost to the customer (with the hope that this helps with retention and demand). Yuan said: 

In FY ‘24, we made a tremendous amount of progress towards our mission of one platform delivering limitless human connection. As Generative AI began to take the world by storm, we listened carefully to customers in order to deliver AI that can best serve their needs, with innovation that is responsible, empowering, and built from the ground up in a way that permeates and unifies our entire platform.

Zoom AI Companion, our generative AI assistant, empowers customers and employees with enhanced productivity, team effectiveness, and skills. Since its launch only five months ago, we expanded AI Companion to six Zoom products, all included at no additional cost to licensed users. But we are far from done. Our future roadmap for AI is 100% guided by driving customer value. 

We are hard at work developing new AI capabilities to help customers achieve their unique business objectives and we'll have more to share in a month at Enterprise Connect. We hope to see you all there.

Yuan also spoke to Zoom’s expanding Contact Center Suite, which he described as an “AI-first solution”. Whilst the base product includes AI Companion, Zoom recently announced new tiered pricing that allows customers to add specialized CX capabilities, such as AI Expert Assist, workforce management, quality management and omni-channel support. He added: 

Bolstered by its expanding features, our Contact Center suite is beginning to win in head-to-head competition with legacy incumbents. Beyond that, it is competing on its own merits with customers completely new to Zoom, broadening the funnel to the Zoom platform. As Zoom becomes a full workplace solution, we are seeing customers migrate from other chat products onto Zoom Team Chat, very excited.

Over the past year, Zoom Team Chat usage has increased 130% across our paid accounts. And our migration tool, designed to simplify the transition, has seen a 4x increase in downloads in the last six months. Customers across industries are moving to Zoom Team Chat including a global supply chain leader, who has migrated over 1,200 users, a major law firm who has migrated 1,500 users, and a financial payments leader, who has moved over 2,000 users.

Commenting on the coming months, Yuan is optimistic about Zoom’s prospects. Yuan said: 

FY ‘24 was a difficult year from a macro perspective and we faced those challenges head on. We became more disciplined and focused, while continuing to prioritize growth opportunities. As a result, we are much better positioned than we were one year ago. 

Our platform moat is deeper, our contact center offering is more robust, and our go-to-market teams are primed with defined goals and sharpened expertise to drive growth and empower our customers.

My take

Whilst Zoom may no longer be experiencing the frenzied hype that it saw during the early days of COVID-19, what matters most is its long-term potential. Organizations are still figuring out how to adapt to hybrid work environments and trying to understand which platforms best suit their needs. Whilst some will stick with the offering made available by their core collaboration platforms for ease of integration, for example those using Microsoft 365 or Workspace, Zoom continues to excel when it comes to usability. Offering some basic AI capabilities as a free add-on to existing licenses is a smart move in my opinion, as customers begin experimenting. This gives Zoom the chance to get buyers on board with its capabilities and offer additional products or services. The coming months will be telling, but the prospects look good. 

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