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Zoom sees stiff competition from MS, Google

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Although the revenue of video telephony firm Zoom Video Communications rose in the first quarter of 2022, tech giants Microsoft and Google are steadily eating away at its market share.

Yesterday, Zoom announced financial results for the first fiscal quarter ended 30 April, with revenue of $1.07 billion, up 12% year-over-year.

The company’s star has seen a meteoric rise since the outbreak of COVID-19, as more people relied on video-conferencing solutions after taking to remote working and learning.

According to an analysis by MoneyTransfers.com, Zoom's share price peaked at $559 in 2020 as the pandemic bit. Fast forward to today, the situation has changed somewhat, with Zoom’s share price tumbling to $84.69, an 84% decline.

At the time of writing, the share price stood at $89.33.

In its results, the company says generally accepted accounting principles (GAAP) income from operations for the first quarter was $187.1 million, compared to GAAP income from operations of $226.3 million in the first quarter of fiscal year 2022.

After adjusting for stock-based compensation expense and related payroll taxes, litigation settlements, net and acquisition-related expenses, non-GAAP income from operations for the first quarter was $399.6 million, compared to non-GAAP income from operations of $400.9 million in the first quarter of fiscal year 2022.

New customers drive growth

For the first quarter, GAAP operating margin was 17.4% and non-GAAP operating margin was 37.2%.

GAAP net income attributable to common stockholders for the first quarter was $113.6 million, or $0.37 per share, compared to GAAP net income attributable to common stockholders of $227.4 million, or $0.74 per share in the first quarter of fiscal year 2022.

Non-GAAP net income for the first quarter was $315.8 million, after adjusting for stock-based compensation expense and related payroll taxes, litigation settlements, net, losses on strategic investments, net, acquisition-related expenses, undistributed earnings attributable to participating securities and the tax effects on non-GAAP adjustments. Non-GAAP net income per share was $1.03.

In the first quarter of fiscal year 2022, non-GAAP net income was $402.1 million, or $1.32 per share.

Total cash, cash equivalents and marketable securities, excluding restricted cash, as of 30 April, was $5.7 billion.

Net cash provided by operating activities was $526.2 million for the first quarter, compared to $533.3 million in the first quarter of fiscal year 2022.

Adjusted free cash flow, which is net cash provided by operating activities less purchases of property and equipment, plus litigation settlement payments, net, was $501.1 million, compared to $454.2 million in the first quarter of fiscal year 2022.

According to Zoom, drivers of total revenue included acquiring new customers and expanding across existing clients.

At the end of the first quarter of fiscal year 2023, Zoom had approximately 198 900 enterprise customers, up 24% from the same quarter last fiscal year.

“In Q1, we launched Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales, demonstrating our continued focus on enhancing the customer experience and promoting hybrid work. We believe these innovative solutions will further expand our market opportunity for future growth and expansion with customers,” says Zoom founder and CEO Eric S Yuan.

“Additionally in Q1, we delivered revenue of over one billion dollars driven by ongoing success in Enterprise, Zoom Rooms and Zoom Phone, which reached three million seats during the quarter. We also maintained strong profitability and cash flow, including 17% in GAAP operating margin, approximately 37% non-GAAP operating margin, approximately 49% operating cash flow margin, and over 46% adjusted free cash flow margin.”

Looking ahead to the full fiscal year 2023, Zoom expects total revenue to be between $4.53 billion and $4.55 billion.

Full fiscal year non-GAAP income from operations is expected to be between $1.48 billion and $1.5 billion. Full fiscal year non-GAAP diluted EPS is expected to be between $3.70 and $3.77, with approximately 309 million non-GAAP weighted average shares outstanding.

Virtual meeting drop-off

“The decline of Zoom's share price has been nothing short of spectacular, but not unexpected at all,” says MoneyTransfers.com CEO Jonathan Merry.

“The market got crowded, directing some significant interest to alternative apps. That was bound to impact its market performance. But the most critical contributor to the decline has been a resumption of pre-pandemic lifestyles. Most countries have allowed in-person meetings and learning, relegating virtual meetings to the backburner.”

According to MoneyTransfers.com, Zoom has been ceding ground to Microsoft and Google. It explains that Microsoft, in particular, has made a dent in Zoom’s market share through its Teams platform.

By July 2020, it notes, Teams was reporting 250 million monthly users, up from 10 million in 2019.

The firm believes Teams owes its growth to Microsoft merging its video-conferencing unit with its Microsoft 365 applications.

“That move created one product with broad functionality, unlike Zoom. Microsoft CEO Satya Nadella has described Teams as the only solution for securely merging calls, meetings, chat, business process workflow and content collaboration,” says MoneyTransfers.com.

“Teams’ focus is also giving it an advantage over Zoom. Whereas the former targets organisations only, the latter serves both individuals and businesses. Microsoft’s focus on organisations gives it a more sustainable client base.

“That said, Zoom remains a formidable player within the video-conferencing sphere. It has a healthy balance sheet and robust revenue stream.”

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