Shares of Zoom Drop Despite Sales Almost Quadrupling in the Last Quarter

One of the biggest companies to win this year as a result of COVID-19 has been Zoom Video Communications Inc.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, just saw another blockbuster quarter. Its’ videoconferencing software has become a vital part of life for many people this year during the coronavirus pandemic.

Zoom reported its third quarter financial results on Monday and revealed a second straight quarterly revenue jump of over 350%. Adjusted earnings also increased 11x.

In the first quarter Zoom had reported a revenue increase of 169% and an increase of 355% in the second. The company had predicted that the same would happen in the fourth quarter, projecting revenue to top $800 million for the first time after recording less than $200 million in the fourth quarter least year, and increased its annual revenue goal to roughly $2.58 billion.

“We expect to strengthen our market position as we finish the fiscal year with an increased total revenue outlook of approximately $2.575 billion to $2.580 billion for fiscal-year 2021, or approximately 314% increase year-over-year,” said Zoom Chief Executive Eric Yuan.

Shares of Zoom have exploded this year with gains of over 580% but fell 5% in after-hours trading on Monday after the report.

Wall Street may not have been impressed with the company’s gross margin which declined to 66.7% in the third quarter from 71% in the previous quarter and more than 80% before the pandemic.

Gross margins are expected to remain under pressure for the foreseeable future amid a surge in free users and escalating public-cloud service costs, said Zoom Chief Financial Officer Kelly Steckelberg to analysts.

Analysts polled by Refinitiv think revenue will see a slow decline in the next two quarters.

“(T)here’s going to be perceptual headwinds with Pfizer’s vaccine,” said Chaim Siegel, an analyst at research firm Elazar Advisors. Siegel lowered his rating on Zoom to buy from strong buy.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.