Zoom Video Communications (ZM -1.69%)
Q3 2023 Earnings Call
Nov 21, 2022, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Kelcey McKinley
Well, hello, everyone, and welcome to Zoom’s Q3 FY ’23 earnings release webinar. As a reminder, today’s webinar is being recorded. And now, I will hand things over to Tom McCallum, head of investor relations. Tom, over to you.
Find out why Zoom Video Communications is one of the 10 best stocks to buy now
Our award-winning analyst team has spent more than a decade beating the market. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed their ten top stock picks for investors to buy right now. Zoom Video Communications is on the list — but there are nine others you may be overlooking.
Click here to get access to the full list!
*Stock Advisor returns as of November 7, 2022
Tom McCallum — Head of Investor Relations
Hello, everyone, and welcome to Zoom’s earnings video webinar for the third quarter of FY ’23. I’m joined today by Zoom’s founder and CEO, Eric Yuan; and Zoom’s CFO, Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.us. Also on this page, you’ll be able to find a copy of today’s prepared remarks, a slide deck with financial highlights that, along with our earnings press release, include a reconciliation of GAAP to non-GAAP financial results.
During this call, we will make forward-looking statements, including statements regarding our financial outlook for the fourth quarter and full fiscal year 2023; our expectations regarding financial and business trends; impacts from macroeconomic developments and the Russia-Ukraine war; our market position, opportunities, growth strategy, and business aspirations; and product initiatives and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to the risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements that we may make on today’s webinar.
And with that, let me turn the discussion over to Eric.
Eric Yuan — Founder and Chief Executive Officer
Thank you, Tom. And thank you, everyone, for joining us today. So, last week, we hosted our first fully hybrid Zoomtopia using Zoom Events, and it was great. We unveiled new innovations like Zoom Mail and Calendar, which enable users to frictionlessly navigate across their email, calendar, and other Zoom products, all within the same client.
At Zoomtopia, many of our customers highlighted how they use our expanding platform to do more in the world of flexible work. At our first Partner Connect event, we hosted hundreds of channel partners, who are excited about working with us to drive adoption of the Zoom platform globally. And our developer partners showcased add-on apps that connect interrelated workflows to the Zoom client. As global organizations adapt to how, when, and where work happens, human connection remains paramount.
Zoom is purpose-built to make all kinds of connections possible, effective, and meaningful. We have developed and launched more than 1,500 features and enhancements on the Zoom platform this year, advancing how people connect with each other, their organization, and their customers, ultimately, opening the doors wide for creativity and collaboration. Of course, even as we celebrate our innovations and customers, we still face the backdrop of a challenging macroeconomic environment. We continue to see FX pressure and heightened deal scrutiny for new business but remain focused on delivering happiness to our customers by innovating our platform and expanding our go-to-market capabilities.
Zoom provides a full suite of communications solutions at an attractive total cost of ownership that enables teams to do more with less. And our new products like Zoom Contact Center and Zoom IQ for Sales enable revenue-generation and drive productivity. The continued strength of our enterprise growth is a testament to how the value proposition of our platform resonates with customers even in tougher economic environments. As we enable customers to drive greater efficiency, we also are focusing on our own efficiency.
We have always been judicious with investments, prudent about spending, and we have commanded robust margins since our IPO. So, this is not a major shift for us. We will continue to drive innovation, customer value, and platform expansion, balanced with an increasing emphasis on efficiency and profitability. We continued to see strong traction with customers spending greater than $100,000 in trailing 12 months revenue, which was up 31% year over year.
What’s more, these customers are increasingly seeing value in buying the whole platform, with thousands of customers already buying Zoom One packages. From an industry perspective, the largest deals came from tech, media, and financial services. And we also had notable wins in retail, transportation, and pharma. On the tech front, let me first thank Qualtrics, the leader and creator of the experience management category, for expanding their partnership with us.
Qualtrics recently upgraded to Zoom One enterprise, which provides the full power of the Zoom platform to their users and allows them to make meaningful connections with meetings, team chat, whiteboard, phone, and more in one offering. We are delighted to offer Qualtrics a broad set of communications products integrated into one secure and easy-to-use platform. Our enterprise segment comprises not only large publicly traded corporations but also many private companies of all sizes, who see great value in enhancing their Zoom implementations by moving toward our full UC platform. Let me give you a few examples.
First of all, I’d like to thank Vensure Employer Services, a privately owned professional employer organization, for placing their trust in Zoom. In Q3, they added 5,500 Zoom Phone seats and 650 Zoom Contact Center seats, demonstrating the promise they saw in adopting a modern, integrated solution for their teams to interact. Let me also thank Chime Solutions for establishing and already expanding their partnership with Zoom, which includes Zoom One and Zoom Contact Center. Founded with an unwavering focus on bringing jobs and opportunities to underrepresented communities, Chime Solutions delivers high-touch contact center solutions for mid-sized companies and Fortune 500 corporations.
After seeing how well Zoom Contact Center addressed many of their customer’s needs and gaining confidence in Zoom’s ability to deliver innovation at a rapid pace, they decided to replace their legacy solution with Zoom Contact Center. Executing our innovation roadmap for Contact Center will give us the opportunity to further enhance our partnership with Chime Solutions in the quarters and years to come. I also want to thank G-P, the number one SaaS-based global employment platform, for choosing Zoom Phone to transform their communication systems and support employees across their organization. G-P understood the value of our integrated platform of communication products from their experience using Zoom Meetings, Zoom Webinars, Team Chat, and Zoom Rooms.
G-P ultimately opted for Zoom Phone, as the missing piece in their UC stack, in order to improve their customers’ experience, while also enjoying the savings benefits of a cloud-based PBX solution integrated into a full communications platform. Also, I’d like to add that G-P is Zoom’s global expansion employment partner and has played a critical role in our growth strategy, giving us the agility and speed to enter new markets quickly. Again, thank you Qualtrics, Vensure, Chime Solutions, and G-P, and all of our customers worldwide. And with that I’ll pass it over to Kelly.
Thank you.
Kelly Steckelberg — Chief Financial Officer
Thank you, Eric. Let me now turn to the quarter’s results and guidance. In Q3, total revenue came in at $1.102 billion, up 5% year over year and 7% in constant currency. This result was approximately $2 million above the high end of our quarterly guidance.
The growth in revenue was primarily driven by strength in our enterprise business, which grew 20% year over year and represented 56% of total revenue, up from 49% a year ago. We expect enterprise customers to comprise an increasingly higher percentage of total revenue over time. From a product perspective, we had strong growth in Zoom Phone, coupled with contributions from Zoom Rooms and other products. At investor day earlier this month, we introduced a new metric, online average monthly churn.
In Q3, this metric continued to improve to 3.1%, from 3.7% in Q3 of FY ’22 and 3.6% last quarter. We are pleased that this metric has now returned to pre-pandemic levels. The number of enterprise customers grew 14% year over year to approximately 209,300. Our trailing 12-month net dollar expansion rate for enterprise customers in Q3 came in at a healthy 117%.
We saw 31% year-over-year growth in the upmarket as we ended the quarter with 3,286 customers contributing more than $100,000 in trailing 12 months revenue. These customers represented 27% of revenue, up from 22% in Q3 of FY ’22. Our Americas revenue grew 11% year over year. EMEA continues to be impacted by the stronger dollar, the Russia-Ukraine war, and online performance, which combined led to a decline of 9% year over year.
APAC, which also impacted by the stronger dollar, declined 3% year over year. Now, turning to profitability. I will focus on our…
Read More: Zoom Video Communications (ZM) Q3 2023 Earnings Call Transcript | The Motley Fool