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Zoom's (ZM) Q3 Earnings Top Estimates, Revenues Jump Y/Y

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Zoom's (ZM - Free Report) third-quarter fiscal 2021 adjusted earnings of 99 cents per share beat the Zacks Consensus Estimate by 32%. The company had reported earnings of 9 cents per share in the year-ago quarter.

Moreover, revenues of $695 million surpassed the consensus mark by 11.8% and also soared 366.5% year over year. This outperformance was primarily driven by new customer subscriptions, which accounted for approximately 81% of growth. Existing customer subscriptions represented roughly 19% of the year-over-year growth.

Revenues from Americas (69.3% of revenues) jumped 302.2% year over year to $538.5 million. EMEA (17.4% of revenues) soared a whopping 607.9% from the year-ago quarter to $135.2 million. APAC (13.3% of revenues) were $103.5 million, up a massive 655.5% year over year.

However, shares fell more than 5% in after-hours trading. Notably, Zoom shares are up 564.2% year to date, outperforming the Zacks Internet-Software industry’s rally of 100.3%.

User Base Jumps in Q3

Zoom continued to benefit from the coronavirus-induced work-from-home and online-learning wave, similar to its competitors Cisco (CSCO - Free Report) and Microsoft (MSFT - Free Report) .

At the end of fiscal third quarter, Zoom had roughly 433,700 customers (with more than 10 employees), up 485% year over year. Markedly, Zoom’s trailing 12-month net dollar-expansion rate in customers with more than 10 employees was above 130% for the 10th consecutive quarter.

Moreover, this Zacks Rank #3 (Buy) company had 1,289 customers with more than $100,000 in trailing 12-month revenues up 136% year over year. Peloton (PTON - Free Report) and Rakuten were notable enterprise customer additions in the reported quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, Cisco witnessed solid Webex growth in first-quarter fiscal 2021. The company expects Webex momentum to continue, driven by new offerings, including Webex Room Navigator that facilitates return-to-office solutions and Webex Legislate, aimed at supporting vital functions of global governments.

Further, Microsoft Teams continue to witness record adoption in first-quarter fiscal 2021 with daily active user base reaching 115 million.

Operating Details

Non-GAAP gross margin in the quarter under review was 68.2%, significantly down from 81.7% reported in the year-ago quarter. The fall was attributed to higher number of free users and continued higher utilization of public cloud services.

Research & development (R&D) expenses as a percentage of revenues decreased 510 basis points (bps) on a year-over-year basis to 3.2%. Further, general & administrative (G&A) expenses decreased 290 bps to 9.4%.

Moreover, sales & marketing (S&M) expenses as a percentage of revenues were 18.2%, significantly down from 49.5% reported in the year-ago quarter.

Non-GAAP operating income surged to $290.8 million from $21.3 million reported in the year-ago quarter. Operating margin expanded to 37.4% from 12.8% reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Oct 31, 2020, cash and cash equivalents and marketable securities were $1.87 billion compared with $1.48 billion as of Jul 31, 2020.

Free cash flow was $388.2 million in the quarter under review compared with $373.4 million in the previous quarter and $54.7 million in the year-ago quarter.

Remaining Performance Obligation (“RPO”) was $1.42 billion, up 215.5% year over year. The company expects to recognize nearly 72% or $1.2 billion of the total RPO as revenues over the next 12 months.

Guidance

For fourth-quarter fiscal 2021, Zoom expects revenues between $806 million and $811 million. Non-GAAP income from operations is expected between $243 million and $248 million. Moreover, non-GAAP earnings are expected in the 77-79 cents-per-share range.

The Zacks Consensus Estimate for earnings is currently pegged at 62 cents per share, much below the guidance level. The company had reported earnings of 15 cents in fourth quarter of fiscal 2020.

Moreover, the consensus mark for fourth-quarter revenues stands at $718.9 million, indicating year-over-year growth of 281.9%.

For the full fiscal, Zoom now expects revenues between $2.575 billion and $2.580 billion (up from the previous revenue guidance of $2.37- $2.39 billion).

Non-GAAP income from operations is expected between $865 million and $870 million (up from the past outlook of $730-$750 million). Moreover, non-GAAP earnings are expected in the $2.85-$2.87 per-share range (up from previous outlook of $2.40-$2.47 per share).

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