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Zoom Jumps on Sales Forecast, Signaling Success of New Products

·3-min read

(Bloomberg) -- Zoom Video Communications Inc. offered a glimpse of optimism that it can expand beyond its consumer-friendly video software that helped the company to a pandemic boom. Investors who have soured on Zoom aren’t entirely convinced.

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The software maker projected revenue would increase about 10% in the current period, better than analysts’ estimates, but still its slowest quarterly sales growth. The shares initially jumped 21% in extended trading after the company announced results, though they gave up most of the gains and were up only 2.4% in early trading in New York on Tuesday.

While Zoom became ubiquitous during the pandemic as a tool for people to stay in touch with family and friends, Chief Executive Officer Eric Yuan now is focused on business customers who will make up an increasingly larger share of revenue. Yuan on Monday touted new products aimed at enterprise customers, which increased 24% to 198,900 in the period ended April 30.

Benchmark Co.’s Matthew Harrigan said in a note before the results that investors have overlooked Zoom’s potential as a key tool for hybrid workplaces as major industries embrace remote work. The company is focusing on its enterprise offerings by adding products for customer service contact centers and analytics. Zoom recently announced the acquisition of Solvvy, a conversational AI startup, and unveiled Zoom IQ, a call analytics tool for sales departments.

“These new product launches encapsulate our strategy to expand horizontally and vertically to ensure our customers are getting more out of the platform,” Yuan said in a conference call. He also touted customers for Zoom’s enterprise phone system, including Humana Inc., Avis Budget Group Inc. and Franklin Covey Co.

Zoom is making progress on diversifying its product portfolio, Bloomberg Intelligence analysts John Butler and Hoa Nguyen said in a note after the results.

“Zoom’s path to higher growth lies in expanding enterprise revenue, with this segment climbing 20% in 1Q,” they wrote.

Zoom hasn’t maintained the breakneck triple-digit growth it experienced during the pandemic as offices reopen and competition increases from Microsoft Corp.’s rival video communications platform. Fiscal first-quarter sales increased 12% to $1.07 billion, Zoom’s slowest year-over-year growth on record.

Revenue will be as much as $1.12 billion in the period ending in July, the San Jose, California-based company said in the statement. Profit, excluding some items, will be as much as 92 cents a share. For the full year, Zoom raised its earnings forecast to as much as $3.77 a share from its February projection of $3.51.

Read More: Zoom’s 85% Selloff Has Analysts Calling for a Rally: Tech Watch

“I think the market wants to see signs that Zoom isn’t just a Covid stock,” said Tejas Dessai, a research analyst at Global X, which counts Zoom as a top holding of its cloud-focused exchange traded fund. “We would like to see increased consumption from larger enterprises, especially those with more than $100K in annual spending on the platform,” Dessai said in an interview before the results were released.

The stock has plummeted 51% this year as part of a broad decline among software makers.

(Updates shares in second paragraph.)

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