Zoom Video Stock Pops 12% as Earnings Delight: 5 Metrics You Should See
Zoom Video Communications (NASDAQ: ZM) delighted investors when it reported first-quarter results for fiscal 2020 after the market closed on Thursday.
In its first quarterly report as a public company, the videoconferencing specialist beat Wall Street's revenue and earnings estimates, and issued better-than-expected guidance.
Shares closed up 11.8% in after-hours trading on Thursday, which bodes well for a robust performance on Friday. Since the company's initial public offering (IPO) in mid-April, Zoom stock has gained a whopping 121% through the regular trading session on Thursday -- and, while it's not a sure thing, investors can probably bet on that tally rising on Friday.
Here's an overview of Zoom Video's quarter, along with its guidance for second-quarter and full-year 2019, using five metrics.
1. Revenue soared 103%
Zoom's quarterly sales more than doubled year over year to $122.0 million, exceeding the $117.7 million that analysts were expecting. Growth was driven by the company winning new customers and by expanding the services it provides to existing customers.
Here's a look at key customer metrics:
| Customer Metric |
Fiscal Q1 2020 |
Change (YOY) |
|---|---|---|
| Customers with more than 10 employees |
58,500 |
86% |
| Customers contributing revenue of more than $100,000 in trailing 12 months |
405 | 120% |
| Trailing-12-month dollar expansion rate for customers with more than 10 employees |
above 130% |
N/A |
2. Operating income flipped to positive from negative
Operating income came in at $1.6 million, up from a loss of $1.7 million in the year-ago period. Adjusted for one-time items, operating income landed at $8.2 million, up from an adjusted loss of $0.8 million in the first quarter of last year.
Operating margin was 1.3% and adjusted operating margin was 6.7%.
3. Earnings also turned positive from negative
Net income was $0.2 million, or $0.00 per share, compared to a net loss of $1.3 million, or $0.02 per share, in the year-ago quarter. Adjusted for one-time items, net income came in at $8.9 million, or $0.03 per share, up from a net loss of $0.5 million, or $0.00 per share, in the first quarter of last year.
Wall Street had been looking for break-even adjusted earnings per share (EPS), so Zoom easily surpassed the profit expectation.
4. Operating cash flow rocketed nearly 700% and FCF turned positive
Operating cash flow soared 693% year over year to $22.2 million and free cash flow (FCF) was positive $15.3 million, compared to negative $1.1 million in the year-ago period.
5. A sunnier-than-expected outlook for Q2 and full-year fiscal 2020
For the second quarter of fiscal 2020, Zoom Video guided for revenue between $129 million and $130 million, which, at the midpoint, represents 6.1% sequential growth. It expects Q2 adjusted EPS of $0.01 to $0.02. Wall Street had been modeling for break-even EPS on revenue of $123.3 million.
For the full year, the company projects sales in the range of $535 million to $540 million and adjusted EPS of $0.02 to $0.03. The Street has been anticipating full-year revenue of $525.9 million. (Going into the earnings report, there was no consensus estimate for full-year earnings.)
For a fast-growing, newly public company, revenue growth is usually more important than showing profits because such companies often plow money into initiatives aimed at rapidly scaling their business. That said, Zoom has a relatively rare distinction among technology IPOs of being profitable on a reported basis in its most recent fiscal year preceding going public.
CEO Eric Yuan commented on this topic in the earnings release:
The bottom line
In short, Zoom Video Communications had a great quarter, with the company forecasting more good times on the horizon.
With cash and cash equivalents of $737.7 million at the end of the quarter, the company has plenty of money to fund growth.
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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.