Following the company's quarterly earnings and outlook that failed investor expectations, Zoom Communications' (ZM, Financial) shares dropped 10% in premarket trade Tuesday, throwing doubt over the collaboration software market.
Zoom reported adjusted earnings of $1.38 per share for the third quarter on October 31, and revenue increased 3.6% year-over-year to $1.18 billion. Although the numbers somewhat exceeded expectations, experts pointed out that the rate of recovery begged some questions.
Mark Murphy, a J.P. Morgan analyst, called the performance a "muted" comeback and underlined investor dissatisfaction over reduced expected gain in deferred income. "Although Zoom exceeded its FY25 guidance framework, revenue growth recovery appears slower than hoped, which may lead the stock to pause until there is more visibility," Murphy said in a letter to clients.
After a remarkable comeback in its shares since Q2, Zoom which recently changed its name to Zoom Communications has faced higher expectations. Nonetheless, the stock trades at around 12 times enterprise value to expected free cash flow. Murphy kept a Neutral rating and a $80 stock price target.
