Shares of communications platform Zoom Video Communications (ZM -6.31%) dropped on Tuesday after the technology company reported financial results for its fiscal third quarter of 2025. Everything in the quarter was actually fine. But going into the report, Zoom stock was at a two-year high and had risen over 50% in just a few months.
It seems that financial results weren’t quite inspiring enough to keep investors from taking recent profits off of the table. And that’s why Zoom stock was down about 8% as of 2:45 p.m. ET.
The beat and raise was modest for Zoom
To reiterate, Zoom’s financial results beat expectations on both the top and bottom lines. Moreover, management even raised its full-year guidance. Previously its guidance was for revenue of $4.630 billion to $4.640 billion, whereas now the revenue guidance is modestly higher at $4.656 billion to $4.661 billion.
Similarly, Zoom’s management expects full-year adjusted earnings per share (EPS) of $5.41 to $5.43, whereas before it only expected adjusted EPS of $5.29 to $5.31.
Beating and raising guidance is good. But consider that Zoom’s Q3 revenue was only up 3.6% year over year and guidance is only modestly higher. That’s why investors weren’t more upbeat about the report.
One thing to watch
One thing is for sure: Zoom is a profitable business with tons of cash. The company has $7.7 billion in cash, cash equivalents, and marketable securities. And it’s on pace to generate about $1.6 billion in full-year free cash flow. With this, it’s looking to give back to shareholders with a total buyback plan of about $2 billion as of this writing.
The problem is that Zoom already repurchased 4.4 million shares in Q3 and yet the outstanding share count still went up due to stock-based compensation. Buyback plans boost the share price when the number of shares go down. So investors should keep an eye on stock-based compensation from here because it is one of the issues that’s preventing Zoom stock from performing better.
Jon Quast has positions in Zoom Video Communications. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.
