Zoom Video Q4 Earnings Preview: Buy, Sell or Hold the Stock?

Core Viewpoint - Zoom Video is expected to report modest revenue growth and a decline in earnings per share for the fourth quarter of fiscal 2025, reflecting ongoing challenges in the enterprise market and competition in the collaboration space [1][2][17]. Revenue and Earnings Estimates - Zoom anticipates fourth-quarter fiscal 2025 revenues between $1.175 billion and $1.18 billion, with the Zacks Consensus Estimate at $1.18 billion, indicating a 2.77% increase year-over-year [1]. - Non-GAAP earnings per share are projected to be in the range of $1.29-$1.30, with the Zacks Consensus Estimate at $1.31 per share, representing a 7.75% decline from the previous year [2]. Earnings Surprise History - Zoom has a positive earnings surprise history, with a 5.34% surprise in the last reported quarter and an average surprise of 14.29% over the trailing four quarters [3]. Earnings Prediction Model - The current Earnings ESP for Zoom is 0.00%, and it holds a Zacks Rank 3 (Hold), indicating that the model does not predict a definitive earnings beat this time [4][5]. Growth and Strategic Initiatives - The company reported a 3.6% year-over-year revenue growth in the fiscal third quarter, suggesting a stabilization after a period of deceleration [6]. - Management projects approximately 2.7% year-over-year revenue growth for the fourth quarter, reflecting cautious spending from enterprise customers [7]. - Strategic initiatives, such as the introduction of Zoom Workplace for Education and the Video SDK for resale partners, may positively influence performance, although their impact is expected to be limited due to late-quarter timing [8]. Financial Metrics and Challenges - Zoom's gross margins declined to 78.9% in the fiscal third quarter from 79.7% the previous year, influenced by ongoing AI investments [9]. - The company has a strong balance sheet with $7.7 billion in cash and investments and a $2 billion share repurchase program, providing some downside protection [10]. - Despite a trailing 12-month net dollar expansion rate of 98% for enterprise customers, challenges remain in fully monetizing the existing customer base amid economic uncertainty [10]. Stock Performance and Valuation - Zoom's stock has increased by 41.3% over the past six months, outperforming the broader Zacks Computer and Technology sector, which grew by 7.7% [11]. - The company's price-to-sales ratio of 5.44 is higher than the industry average of 5.1, indicating high growth expectations but also elevated risk [13]. Investment Outlook - The investment thesis for Zoom suggests a balanced case heading into the earnings report, with signs of stabilization but ongoing competition and cautious enterprise spending [17]. - Current shareholders may benefit from holding their positions while monitoring the execution of the AI-first strategy, and new investors might find better entry points post-earnings [19].