Summary
Zoom Video Communications reported first quarter fiscal 2023 revenue of $1.07 billion, up 12.3% from $956.24 million a year earlier. Gross profit rose 17.5% to $811.98 million, and gross margin climbed to 75.6% from 72.3%. The company attributed the top line increase mainly to subscription services provided to new customers. Gross margin improved as Zoom expanded internal data center capacity and secured lower rates from third-party cloud hosting providers.
Profitability moved lower. GAAP operating income fell 17.3% to $187.06 million from $226.31 million. GAAP net income dropped 50.0% to $113.66 million from $227.53 million. Diluted EPS fell to $0.37 from $0.74. Operating margin slipped to 17.4% from 23.7%. The profit decline came as operating expenses increased, particularly in research and development and sales and marketing. The company still reported non-GAAP income from operations of $399.6 million and a non-GAAP operating margin of 37.2%, down from 41.9% a year earlier. Non-GAAP net income was $315.8 million, or $1.03 per diluted share, compared with $402.1 million, or $1.32 per diluted share, a year earlier.
Cash generation remained substantial but edged lower. Operating cash flow was $526.15 million, down 1.3% from $533.30 million. Capital expenditures were $25.04 million, down 68.3% from $79.07 million. Adjusted free cash flow, a non-GAAP measure, was $501.1 million compared with $454.2 million. Adjusted free cash flow margin was 46.7%, compared with 47.5% a year earlier. Cash, cash equivalents, and marketable securities stood at $5.7 billion as of April 30, 2022. The company also repurchased $132.4 million of common stock during the quarter.
Customer metrics showed expansion. Zoom ended the quarter with approximately 198,900 Enterprise customers, up 24% from 160,300 a year earlier. Customers contributing more than $100,000 in trailing 12 months revenue totaled 2,916, up approximately 46% from 1,999. They represented 24% of total revenue, up from 19%. The trailing 12-month net dollar expansion rate for Enterprise customers was 123%, compared with greater than 130% a year earlier. Deferred revenue was $1.29 billion, up 20.3%, and remaining performance obligations were $2.99 billion, up 44.2%.
Product momentum included the launch of Zoom Contact Center, Zoom Whiteboard, and Zoom IQ for Sales. Zoom Phone reached 3 million seats, and Zoom Phone availability expanded to more than 45 countries and territories as of April 30, 2022. Revenue from the rest of world, APAC and EMEA, was 32% of total revenue, down from 34%. Management pointed to ongoing strength in Enterprise, Zoom Rooms, and Zoom Phone.
Zoom issued guidance for the second quarter of fiscal 2023 and for the full fiscal year 2023. For the second quarter, non-GAAP income from operations is expected to be between $360.0 million and $365.0 million, and non-GAAP diluted EPS is expected to be between $0.90 and $0.92 on approximately 308 million non-GAAP weighted average shares outstanding. Management also gave a total revenue range for the quarter. For the full fiscal year 2023, non-GAAP income from operations is expected to be between $1.480 billion and $1.500 billion, and non-GAAP diluted EPS is expected to be between $3.70 and $3.77 on approximately 309 million non-GAAP weighted average shares outstanding, with a full-year total revenue range provided as well.
Risks remain centered on the pandemic and geopolitics. As the COVID-19 pandemic tapers, Zoom may see declines in paid hosts and users once people no longer work or attend school from home. The Russia-Ukraine war and related sanctions could affect results, though customers in Russia, Belarus, and Ukraine were an immaterial portion of net assets and total consolidated revenue for the quarter. Management also expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars and as a percentage of revenue for the rest of fiscal 2023. Competition from other communications platforms, delays or outages at co-located data centers, and failures in internet infrastructure or broadband access remain disclosed risk factors.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.07B | $1.07B | +0.2% | $956.2M | +12.3% |
| Gross profit | $812.0M | $814.0M | -0.3% | $691.2M | +17.5% |
| Gross margin | 75.6% | 76.0% | -0.4 pp | 72.3% | +3.3 pp |
| Research & development | $144.3M | $117.0M | +23.3% | $65.2M | +121.4% |
| Sales & marketing | $362.8M | $325.4M | +11.5% | $245.7M | +47.7% |
| General & administrative | $117.8M | $119.8M | -1.6% | $154.1M | -23.5% |
| Total operating expenses | $624.9M | $562.2M | +11.2% | $464.9M | +34.4% |
| Operating income (loss) | $187.1M | $251.8M | -25.7% | $226.3M | -17.3% |
| Operating margin | 17.4% | 23.5% | -6.1 pp | 23.7% | -6.3 pp |
| Net income (loss) | $113.7M | $490.6M | -76.8% | $227.5M | -50.0% |
| Net margin | 10.6% | 45.8% | -35.2 pp | 23.8% | -13.2 pp |
| Diluted EPS | $0.37 | $1.60 | -$1.23 | $0.74 | -$0.37 |
| Customers | 1,999 | — | — | 265,400 | -99.2% |
Risks
The company states its revenue growth rate has begun to decline and expects it to generally decline in future periods, citing higher market penetration and slowing demand as the COVID-19 pandemic tapers. Revenue for the quarter ended April 30, 2022 increased 12% year over year, down from prior periods.
User growth rate may continue to slow or decline as the pandemic tapers and users return to work or school. The shift in customer mix toward consumers and small businesses during the pandemic could result in higher non-renewal rates.
The market for communication and collaboration platforms is intensely competitive, with competitors like Microsoft Teams, Google Meet, Cisco Webex, and others. The company faces pricing pressure and may need to engage in price-cutting or increased marketing spend. It also faces new competition in contact center from Five9, Genesys, and NICE.
The company expects to continue to increase expenses in the future, which could decrease profitability or prevent maintaining profitability. For the quarter ended April 30, 2022, operating income decreased 17.3% to $187.1 million and net income decreased 50.0% to $113.7 million compared to the prior-year quarter.
Operations in China have caused regulatory scrutiny in both China and the U.S. The company received subpoenas from the DOJ in June and July 2020 regarding interactions with foreign governments and data storage. A negative outcome could result in substantial fines, penalties, and reputational harm.
The company's security measures have been compromised in the past and may be compromised in the future. It has experienced negative publicity related to meeting disruptions and security issues during the pandemic, and vulnerabilities in its software could lead to liability, regulatory investigations, and loss of customer trust.
As the company increases sales to large organizations, its sales cycles could lengthen and it may face greater deployment challenges. Large organizations demand additional features, support, and pricing concessions, leading to higher up-front sales costs and greater unpredictability.
The business may be affected by changes in the economy, including inflation and reduced discretionary spending. Customers may reduce spending or delay payments, and the company could experience longer payment cycles and difficulty collecting receivables.
The company faces intense competition for personnel, especially software developers and sales staff. It has experienced employee turnover due to the 'great resignation' and may struggle to maintain its culture as it grows. Vaccine mandates and reopening offices could also cause attrition.
The company holds strategic investments in publicly traded and privately held companies. In the quarter ended April 30, 2022, it recognized $36.4 million in losses on strategic investments, net, driven by unrealized losses on publicly traded equity securities. Such losses could negatively impact financial results.
The company's results of operations are exposed to currency exchange rate fluctuations. For the quarter ended April 30, 2022, other (expense) income, net decreased by $9.6 million compared to the prior-year quarter, primarily due to a $10.1 million loss related to changes in foreign currency exchange rates. It does not currently hedge non-U.S. dollar exposures.
The company relies on co-located data centers and third-party cloud providers. It may need to rely increasingly on public cloud providers to meet short-term capacity needs, which could result in higher variable costs. Also, data center interruptions or capacity constraints could harm the business.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Enterprise Customers
Customers Contributing More Than $100,000 in Trailing 12 Months Revenue
Adjusted Free Cash Flow
Adjusted Free Cash Flow Margin
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.