Zoom revenue grew 169% during the quarter, and the company doubled its revenue guidance for the year

Earnings

Zoom reported revenue growth of 169% from the previous year in its first-quarter earnings report on Tuesday, and nearly doubled its revenue guidance for the full year, as the coronavirus pandemic drove millions of new customers to the video calling service and turned it into a household name.

Shares fell 4% in after-hours trading during the company’s earnings call, however, as it revealed higher-than-expected cloud computing costs to deal with the surge in demand.

Here’s how the company did:

  • Earnings: 20 cents per share, adjusted
  • Revenue: $328.2 million

Analysts surveyed by Refinitiv had expected 9 cents in adjusted earnings per share and $202.7 million in revenue for the quarter, which ended Apr. 30. Comparing analysts’ estimates with results is not necessarily straightforward given the unpredictable effects of the pandemic during the quarter.

The company also significantly increased its guidance for the fiscal year. It now expects $1.21 to $1.29 in adjusted earnings per share on $1.78 billion to $1.80 billion in revenue. In March, it had forecast 42 cents to 45 cents in EPS on $905 million to $915 million in revenue. 

Needham analyst Richard Valera called the results “incredible” in an appearance on CNBC. “Never have I seen something of that magnitude in my 20 years of covering technology.”

In keeping with its previous practices, the company did not disclose active user numbers. However, Bernstein analysts Zane Chrane and Michelle Isaacs, who have the equivalent of a buy rating on Zoom stock, estimated that the Zoom’s mobile app had 173 million monthly active users as of May 27, up from 14 million on March 4, citing data from app-analytics company Apptopia.

Zoom’s gross margin narrowed to 68.4%, from 82.7% in the previous quarter and 80.2% in the year-ago quarter, as it added computing capacity, including from Amazon Web Services, to handle the swell of new users. The greater reliance on third-party clouds led to more costs, but it was critical to the company meeting the needs of its users, finance chief Kelly Steckelberg told analysts on a Zoom call with analysts on Tuesday.

“Moving forward, as we build additional capacity in our own data centers, we expect to gain some efficiencies, bringing gross margin back toward the mid-70s in the next several quarters ahead,” Steckelberg said, adding that the company expects to increase capital expenditures for data center equipment.

Zoom gave all of its non-commissioned employees a one-time bonus worth two weeks’ pay to help them pay for costs arising from any interruptions to their work because of the pandemic, Steckelberg said.

Zoom said it had 769 customers paying over $100,000 in the trailing 12 months at the end of the fiscal first quarter, up 90% on an annualized basis, compared with 86% in the prior quarter. The company had 265,400 customers with more than 10 employees at the end of the quarter, up 354%. The growth rate in the prior quarter was 61%.

As more people have flocked to Zoom, other companies have taken notice, and people have come across security and privacy issues in Zoom’s software. At the beginning of April Zoom said it would spend the next 90 days finding and fixing problems. Also in April Facebook introduced a video-calling feature called Messenger Rooms that could work as alternative to the free version of Zoom, sending Zoom shares downward, and Verizon announced the acquisition of smaller competitor Blue Jeans

Competition is good for consumers, said Eric Yuan, Zoom’s CEO. 

The company would not resort to introducing advertisements into its calling service, Yuan said.

WATCH: Zoom falls after Facebook announces new group chat feature

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