Zoom pares back annual forecast as revenue growth slows to single digits

Eric Yuan, founder and chief executive officer of Zoom Video Communications Inc., speaks during the BoxWorks 2019 Conference at the Moscone Center in San Francisco, California, U.S., on Thursday, Oct. 3, 2019.

The video-calling software maker's shares fell as much as 8% in after-hours trading.

The company did what it was supposed to.

• Earnings: $1.05 per share, adjusted, vs. 94 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $1.10 billion, vs. $1.12 billion as expected by analysts, according to Refinitiv.

The company's revenue grew 8% in the second fiscal quarter, slower than the 12% growth in the previous quarter. The second quarter ended. The company increased spending on sales and marketing, which resulted in a decrease in net income.

The strong U.S. dollar, performance in the company's online business and sales that got weighted towards the end of the quarter negatively impacted revenue in the quarter.

Steckelberg said that initiatives focused on driving new online subscriptions were not enough to overcome the macro dynamics in the quarter.

The company said it had 204,100 enterprise customers at the end of the quarter. Three months earlier, that number was 199,900. The majority of revenue is delivered by enterprise customers. There are online business customers that don't work with the salespersons.

The fiscal third quarter's adjusted earnings were called for to be 81 cents per share to 83 cents per share on a revenue of $1.10 billion.

The management expects adjusted earnings per share to be between $3.66 and $3.69 and revenue to be between $4.385 billion and $4.395 billion. Refinitiv had expected adjusted earnings and revenue of $4.7 billion. Three months ago, the view was adjusted earnings per share of $3.77 and revenue of $4.530 billion. Executives were affected by economic conditions.

The majority of our revenue has shifted back to the enterprise and we are returning to more normalized enterprise sales cycles with linearity weighted towards the back of the quarter. This contributed to higher than expected deferred revenue in the second quarter.

In the full fiscal year, the company expects the online business to be down between 7% and 8%.

The company said in the quarter that it had agreed to acquire Solvvy and that it had a new pricing structure. Citi lowered its rating on Zoom stock to sell from the equivalent of hold last week due to rising competition and economic pressure on small and medium-sized businesses.

Excluding the after-hours move, the S&P 500 index is down more than 50% so far this year.

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There is a reason why Tyler Radke sees downside for the two companies.