It has been about a month since the last earnings report for Zoom Video Communications ZM. Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Zoom Video due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Zoom Q2 Earnings Beat, Enterprise Customers Drive Revenues

Zoom’s second-quarter fiscal 2025 adjusted earnings of $1.39 per share beat the Zacks Consensus Estimate by 14.88% and increased 3.73% year over year.

Revenues of $1.16 billion beat the consensus mark by 1.22% and increased 2.09% year over year on strong growth from Enterprise customers. Adjusting for foreign currency impact, revenues in constant currency were $1.166 billion, up 2.4% year over year.

Quarter Details

Enterprise revenues were $682.8 million, up 3.5% year over year and represented 58.7% of total revenues. Customers contributing more than $100,000 in revenues in the trailing 12 months grew 7% to 3,933. These customers accounted for 31% of revenues, up from 29% in the year-ago quarter.

In the fiscal second quarter, as part of an effort to improve the customer experience and drive greater efficiency in operations, the company transitioned 26,800 Enterprise customers with low annualized revenue run rate to Online.

The number of Enterprise customers at the end of the second quarter, after accounting for the transition, was approximately 191,600.

The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 98%.

As of the end of the quarter under review, the cumulative number of Zoom Rooms licenses purchased was more than 2 million.

In the quarter, Zoom saw amazing traction with Workvivo as it reached 69 customers with more than $100,000 in ARR, roughly doubling year over year. Workvivo was named Meta Platform’s only preferred migration partner for its customers as it retires Workplace from Meta.

ZM witnessed additional traction in Zoom Contact Center as it surpassed 1,100 Zoom Contact Center customers, representing more than 100% year-over-year growth. This was driven by its recently launched higher pricing tiers as well as its success in larger deals.

The company now has five customers with 100,000 or more Zoom Phone seats. Zoom AI Companion has grown significantly with more than 1.2 million customer accounts enabled as of date.

Non-GAAP Operating Details

Non-GAAP gross margin in the fiscal second quarter was 78.6%, which was slightly lower than 80.3% in the year-ago period, mainly due to investments in AI innovation.

Research and development expenses increased 7.8% year over year to $206.7 million. Sales and marketing expenses declined 3.9% to $358.7 million, while general and administrative expenses plunged 15.3% to $109.5 million.

Operating income rose 13.9% to $202.37 million year over year. The operating margin came in at 17.6% compared with the year-ago quarter’s operating margin of 15.9%.

Balance Sheet

Total cash, cash equivalents and marketable securities, as of Jul 31, 2024, were $7.5 billion.  As of Apr 30, 2024, cash, cash equivalents and marketable securities were $7.4 billion.

Net cash provided by operating activities was $449.3 million for the fiscal second quarter, up 33.7% year over year. Free cash flow was $365.1 million, up 26.2% year over year.

Guidance

Zoom expects third-quarter fiscal 2025 revenues between $1,162 million and $1,165 million.

Non-GAAP earnings per share are expected in the range of $1.29-$1.31.

For fiscal 2025, Zoom expects revenues in the range of $4.63-$4.64 billion.

Non-GAAP earnings per share are expected in the band of $5.29-$5.32.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 12.46% due to these changes.

VGM Scores

At this time, Zoom Video has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zoom Video has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Zoom Video is part of the Zacks Internet – Software industry. Over the past month, HubSpot HUBS, a stock from the same industry, has gained 6.7%. The company reported its results for the quarter ended June 2024 more than a month ago.

HubSpot reported revenues of $637.23 million in the last reported quarter, representing a year-over-year change of +20.4%. EPS of $1.94 for the same period compares with $1.34 a year ago.

For the current quarter, HubSpot is expected to post earnings of $1.89 per share, indicating a change of +18.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for HubSpot. Also, the stock has a VGM Score of B.

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