Zoom Video Communications Inc. is struggling to convince people to pay for its video conferencing service in the third year of the COVID-19 pandemic, contributing to a reduced forecast and a falling share price on Monday.
Zoom ZM, -2.07% Executives slashed their full-year earnings and revenue guidance Monday afternoon, and Zoom Chief Financial Officer Kelly Steckelberg blamed a stronger U.S. dollar — a problem many global tech companies have cited in recent earnings reports — but also a decline in the “online business” or the more casual Zoom user.
“Our revenue was impacted by the strength of the U.S. dollar, the performance of the online business and, to a lesser extent, revenue at the end of the quarter,” said Steckelberg in a statement accompanying the results.
In an interview with MarketWatch and a conference call Monday afternoon, Steckelberg acknowledged that individuals and small businesses have changed their habits. Many are no longer flocking to church as often or for as long as they were at the height of the pandemic, when many Americans worked almost exclusively from home and met with friends during church services. An increase in one-on-one meetings, vacations, and hybrid work schedules has changed the post-pandemic business cycle for Zoom, executives concede, and it’s harder to get users to pay.
“The big challenge is acquiring new customers,” she said.
Zoom recently introduced a 40-minute limit for users with a Basic or Free subscription, which could be a way to get more users to become paying subscribers, according to Mizuho Securities analyst Siti Panigrahi. Steckelberg told MarketWatch that the time cap has had “clearly positive impacts” so far, but acknowledged on the earnings call that it “wasn’t enough to overcome the macro momentum.”
The news wasn’t all bad — Zoom’s corporate business, which sells subscriptions to larger organizations, grew 27% to $599 million. Enterprise customers grew 18% to 204,100 over the past year through contracts with UCLA, Warner Bros. Discovery Inc. WBD, -7.43% and others, as well as longer contracts. Zoom Phone licenses hit a record nearly 4 million, up more than 100% year over year.
“It was a mixed quarter in which the company proved strong,” Steckelberg told MarketWatch.
The ongoing friction between employees who want to continue working from home and employers such as Apple Inc. AAPL, -2.30%, Alphabet Inc.’s GOOGL, -2.53% GOOG, -2.58% Google and Facebook parent Meta Platforms Inc. META , -2.92% — all sitting on acres of unused commercial property asking workers to come by at least twice a week — could have a profound impact on Zoom. A group of Apple employees started a petition Monday asking CEO Tim Cook for a more flexible work policy.
The company also faces stiff competition from Microsoft Corp. MSFT, -2.94%, Cisco Systems Inc. CSCO, -2.03%, versus Google and many other corners.
M Science software analyst Charles Rogers believes users are not jumping to other platforms, instead cutting the service due to inflation and looser pandemic policies. He also saw more worrying results internationally than in the US, with a second straight quarterly decline in the European region and sequentially flat sales in the Asia-Pacific quadrant.
Continue reading: Zoom faces a threat from Microsoft Teams, but how big is the risk?
Zoom reported net income of $45.7 million, or 15 cents a share, on revenue of $1.1 billion in the second quarter, up from $1.02 billion a year earlier. After accounting for stock compensation and other effects, Zoom reported earnings of $1.05 per share, compared to $1.36 per share a year earlier. Analysts polled by FactSet had expected adjusted net income of 94 cents a share on sales of $1.12 billion.
Zoom executives said they now expect full-year adjusted earnings to be between $3.66 and $3.69 per share on sales of around $4.39 billion, down from 3.70 to 3 $.77 per share on sales of $4.53 billion to $4.55 billion. For the third quarter, they’re expecting 82 to 83 cents a share on about $1.1 billion in revenue, while analysts on average had forecast 92 cents a share on revenue of $1.15 billion, according to FactSet.
Zoom shares fell nearly 9% in after-hours trading following the earnings release after closing 2.1% down at $97.44. Zoom’s stock is down 47% so far in 2022. The broader S&P 500 index SPX, -2.14%, is down 13% this year.