Zoom Video Communications Inc slashed its annual profit and sales projection as demand for the video conferencing platform declined. The company lowered its annual sales forecast to $4.4 billion from an earlier projection of up to $4.55 billion. Following the announcement, the share price of Zoom plunged 16% to $81.32 on August 23, 2022, the largest single-day decline since August 31, 2021.
Declining Revenue Growth
The company reported $1.1 billion in revenue for the quarter ended July 2022, which showed an increase of 7.6% YoY. Revenue from the company’s online segment decreased 9% YoY in Q2 2022. For the first time, Zoom, which made video conferencing accessible to everyone, registered single-digit growth. Since the beginning of 2021, revenue growth has been declining due to the decreasing demand from customers who flocked the platform during the COVID-19 lockdown.
Growth Driven by Pandemic Boom
Zoom recorded triple-digit revenue growth at the peak of the COVID-19 pandemic, as people stranded at home turned to video conferencing for communication. The rapid expansion that the company reported during the pandemic slowed down significantly as countries eased COVID-19 restrictions and stiff competition from other video communication platforms such as Microsoft Corp.'s Teams and Cisco’s WebEx ensued. Zoom faces the uphill task of onboarding high-paying clients to sustain its growth. As a result, the company’s expenses increased as it spends more money to attract customers who have been reducing spending due to the high inflationary environment.
Outlook
The Q2 2022 results showed that the company’s transition from an essential COVID-era tool to an enterprise business platform is going to take longer than anticipated. The company implemented initiatives to grow its online business. Recently, it launched a 40-minute time limit for one-to-one calls for those who use it free of cost. The company is attempting to revive user and sales growth with newer products such as the Zoom Phone voice service, which enables users to make and receive phone calls over the internet, and a more affordable Zoom Rooms conferencing platform.
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