Zoom shares drop as big client additions fall short, growth concerns mount

The firm missed predictions for big clients last quarter as well

Zoom Video Communications Inc. shares fell in late trading after the video-conferencing company reported a smaller-than-projected number of large customers for a second straight quarter, stoking concerns about growth as more workplaces and schools open back up.
 

The company had 512,100 customers with more than 10 employees in the third quarter, an increase of 18% from a year earlier, according to a statement from San Jose, California-based Zoom. said Monday in a statement. That missed the average analyst estimate for 516,174, according to data compiled by Bloomberg.

Gains in this closely watched measure have been narrowing -- last quarter, Zoom also missed predictions for big clients, which increased 36% for that period. The quarter before that, Zoom’s number of large customers jumped 87%, and in last year’s third quarter, still in the height of Covid-19 lockdowns, the increase was 485%.

Zoom’s third-quarter revenue and profit exceeded projections, and it gave an upbeat sales forecast for the current period. Yet questions about post-pandemic growth have dogged the stock, which has dropped almost 30% this year. Investors have been closely monitoring Zoom to see whether its online meeting platform, which became a ubiquitous tool throughout the pandemic, remains widely used with many in-person activities resuming and as the company faces rising competition from companies like Microsoft Corp. and Alphabet Inc.’s Google.

The decline this year in Zoom’s shares caused a planned $14.7 billion merger agreement with call-center software vendor Five9 Inc. to fall through in September, cutting off another avenue for growth for Zoom.

Zoom shares dropped about 6% in extended trading. The stock initially soared as much as 9% on the forecast, then fluctuated between gains and losses before turning more steeply negative. The shares had closed the New York trading day at $242.28. While the stock surged almost fivefold in 2020, it has fallen 28% this year.

In the third quarter, which ended in October, sales rose 35% to $1.05 billion, compared with analysts’ average estimate of $1.02 billion, Zoom said. Profit, excluding some items, was $1.11 a share, also beating projections. Net income was $340.3 million, or $1.11 per share, compared with $198.4 million, or 66 cents, a year earlier.

Revenue will be about $1.05 billion in the current period, the company said. Analysts on average had expected fiscal fourth-quarter revenue of $1.02 billion.