Good Quarter for Zoom, Including Phone

Narrow-moat Zoom ZM reported upside to the top and bottom lines for its fiscal fourth quarter, featuring revenue above the top end of guidance and non-GAAP profitability well ahead of the company’s outlook. Enterprise strength continues to be overshadowed by online weakness, which we expect to normalize in the second half of the year. Currency headwinds continue to ease, while the demand environment remains cautious, with elongated sales cycles. New products are gaining traction, but remain relatively small as a percentage of revenue. The outlook for the year was mixed relative to our expectations, with revenue coming in below and non-GAAP operating income coming in better. These impacts generally offset each other and keep our fair value steady at $95 per share. We continue to prefer our wide-moat names during the prolonged software selloff.

Revenue grew 4% year over year as reported, or 6% in constant currency, to $1.118 billion, compared with FactSet consensus of $1.100 billion. Consistent with the last several quarters, enterprise revenue was strong, up 18% year over year, while online business continues to struggle, and Europe was soft, with the region declining 9% compared with the same period last year. Customers with more than $100,000 in trailing annual revenue grew 27% year over year against a challenging 66% growth comparison last year. Zoom Phone, Zoom Rooms, Zoom One, and contact center continue to see good traction. Contact center notably won a 2,000 seat deal and was up more than 100% year over year, while the company exited the quarter with more than 5.5 million Zoom Phone seats. Online average monthly churn improved to 3.4%, compared with 3.8% a year ago. We continue to believe Zoom One and new or newer solutions like phone and the contact center will be instrumental in revenue acceleration next year.