- Zoom will face a growth test in the coming months as pandemic-era enterprise deals enter a "significant contract renewal era," a J.P. Morgan research note published Friday said.
- "We see the renewal cycle, starting in [approximately nine] months, as a potential risk to monitor as companies reassess spending in a post-pandemic environment," said analyst Mark Murphy. J.P. Morgan gave Zoom a neutral rating.
- Despite the headwinds ahead, the bank's assessment remains positive on the company's "underlying technology, continued innovation and market position," according to the note. "We are impressed by the cash-generative financial profile," Murphy wrote.
Zoom, a pandemic-era stock darling whose value skyrocketed in March 2020, has diversified through new products and services while up against enterprise technology incumbents such as Microsoft.
While Q2 2023 year-over-year revenue grew 8% for the period ending July 31, it was down 12% compared to the same period last year, missing the low end of quarterly guidance by about $16 million.
The company has responded to market trends with a steady beat of product and service launches, including the recent rebrand of its chat tool, now Zoom Team Chat. Zoom's Rooms and Phone offerings have also evolved.
"Our platform strategy is playing out very well, and Zoom Rooms and Zoom Phone are critical components of that strategy," said Eric Yuan, Zoom’s founder and CEO, speaking during the Q2 earnings call. "In fact, Zoom Phone was a real star in Q2, hitting several milestones."
The new efforts are already showing results, JPMorgan said. For example, the company surpassed 4 million Zoom Phone seats in August.
"While these are positive trends, our sense is that investors are adjusting to a jarring, though not completely unexpected, growth deceleration and trying to understand key performance indicators as the business works through noise generated by both the pandemic as well as shift in strategy, product-mix, and customer base," Murphy wrote in the research note.
Zoom did not immediately respond to questions via email.