By Stephen Nellis and Uday Sampath Kumar
(Reuters) – Zoom Video Communications Inc forecast fourth-quarter revenue above expectations on Monday but its gross margins fell and some growth metrics slowed, sending shares down 5.2% despite booming sales powered by working and learning from home.
Zoom’s user figures have spiked as a pandemic-induced switch to work from home encouraged more users of its video conferencing service to sign up for paid subscriptions.
But that growth has come at a cost.
While Zoom operates some of its own data centers, it also relies on cloud computing services from outside vendors such as Amazon.com, Microsoft Corp and Oracle Corp to keep up with rising demand. Those bills, combined with large numbers of free users, helped push down Zoom’s gross profit to 66.7% in its fiscal third quarter, below analyst expectations of 72.1%, according to IBES data from Refinitiv, and its pre-pandemic average of around 80%.
Moreover, Zoom said it had 433,700 customers with more than 10 employees, a 485% increase from the year before but only a 17% increase from the fiscal second quarter. Between the company’s fiscal first and second quarters, the growth rate had been 40%.
Slower sales to corporate customers could mean Zoom is losing out to established tech giants, said Ryan Koontz, senior research analyst at Rosenblatt Securities said.
“Cisco and Microsoft are very entrenched in the larger enterprise segment, so Zoom has a much harder job selling against them than they do in the small business space which is largely unpenetrated,” he said.
But Zoom still forecast sales above estimates, saying it expects fourth-quarter revenue of between $806 million and $811 million, above estimates of $730.1 million, according to Refinitiv data.
Revenue for the third-quarter ended Oct. 31 surged 367% to $777.2 million, beating analysts‘ average estimate of about $694 million.
Net income attributable to common stockholders jumped to $198.4 million, or $66 per share, from $2.2 million, or 1 cent per share, a year earlier.
(Reporting by Uday Sampath in Bengaluru and Stephen Nellis in San Francisco; Editing by Sriraj Kalluvila and Tom Brown)