Zoom is struggling to convince consumers to pay, and stock is falling

Zoom is struggling to convince consumers to pay, and stock is falling

is struggling to convince people to pay for its video conferencing service in the third year of the COVID-19 pandemic, contributing to a reduced forecast and share price drop on Monday.

Zoom ZM,
-2.07%
executives cut their earnings and revenue guidance for the fiscal year on Monday afternoon, and Zoom Chief Financial Officer Kelly Steckelberg blamed a stronger US dollar — a problem many global tech companies have called out in recent earnings reports. – but also a decline in “online business”. ” or the more casual Zoom user.

“Our revenue was impacted by the strengthening of the US dollar, the performance of the online business and, to a lesser extent, weighted sales at the end of the quarter,” Steckelberg said in a statement included in the results.

In an interview with MarketWatch and on a Monday afternoon conference call, Steckelberg acknowledged that individuals and small businesses have changed their ways. Many aren’t migrating to the service as often or for as long as they were during the peak of the pandemic, when many Americans worked almost exclusively from home and socialized with friends during the service. An increase in one-on-one meetings, vacations and hybrid work schedules have altered Zoom’s post-pandemic business cycle, executives acknowledge, and it’s harder to get users to pay.

“The big challenge is adding new customers,” she said.

Zoom recently installed a 40-minute limit for users with a basic or free subscription, which Mizuho Securities analyst Siti Panigrahi said could be a way to get more users to become paying subscribers. Steckelberg told MarketWatch that the time limit has had a “significantly positive impact” so far, but admitted on the call that it “has not been enough to overcome macrodynamics.”

The news wasn’t all bad – Zoom’s corporate business, which sells subscriptions to larger organizations, grew 27% to $599 million. Corporate customers increased 18% to 204,100 last year through contracts with UCLA, Warner Bros. Discovery Inc. WBD,
-7.43%
and others, as well as longer agreements. Zoom Phone licenses hit a record high of nearly 4 million, an increase of more than 100% year-over-year.

“It was a mixed quarter, with the company proving to be strong,” Steckelberg told MarketWatch.

Ongoing friction between employees who want to continue working from home and employers like Apple Inc. AAPL,
-2.30%,
GOOGL by Alphabet Inc.,
-2.53%

GOOG,
-2.58%
The parent company of Google and Facebook, Meta Platforms Inc. GOAL,
-2.92%
— all sitting on acres of unused commercial real estate and asking workers to come at least twice a week — can have a profound impact on Zoom. A group of Apple employees on Monday launched a petition asking CEO Tim Cook for a more flexible work policy.

The company also faces stiff competition from Microsoft Corp. MSFT,
-2.94%,
Cisco Systems Inc. CSCO,
-2.03%,
Google and many other corners.

M Science software analyst Charles Rogers believes users are not jumping to other platforms but cutting back on service because of inflation and more relaxed pandemic guidelines. It also saw more worrisome results internationally than in the US, with a second consecutive quarterly decline in the European region and sequentially flat sales in the Asia-Pacific quadrant.

See More information: Zoom faces a threat from Microsoft Teams, but how big is the risk?

Zoom reported fiscal net income of $45.7 million in the second quarter, or $0.15 a share, on revenue of $1.1 billion, up from $1.02 billion a year ago. After adjusting for stock compensation and other effects, Zoom reported earnings of $1.05 a share, down from $1.36 a share last year. Analysts polled by FactSet had expected adjusted net income of 94 cents per share on revenue of $1.12 billion.

Zoom executives said they now expect full-year adjusted earnings of $3.66 to $3.69 per share on revenue of approximately $4.39 billion, down $3.70 to $3.70 a share. 3.77 per share on sales of $4.53 billion to $4.55 billion. For the third quarter, they expect 82 to 83 cents a share on revenue of about $1.1 billion, while analysts, on average, projected $0.92 a share on sales of $1.15 billion. , according to FactSet.

Zoom shares were down nearly 9% in after-hours trading following the earnings release, after closing down 2.1% at $97.44. Zoom shares are down 47% so far in 2022. The broadest S&P 500 SPX index,
-2.14%
dropped 13% this year.

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