Don't Be Misled by Zoom's Adjusted Profit Numbers
Zoom (NASDAQ: ZM) grew like gangbusters during the first two years of the pandemic as businesses big and small had little choice but to adopt videoconferencing software. That growth has slowed as the world gets back to normal. In the just-reported third quarter, Zoom's revenue rose by just 5% year over year.
Even with slower growth, Zoom is still wildly profitable, at least according to the company's adjusted figures. A non-GAAP operating margin of 34.6% in the third quarter looks great, and non-GAAP net income of $323.3 million on revenue of $1.1 billion is downright impressive. Free cash flow totaled $272.6 million, down year over year but still solid.
For the most part, tech companies report non-GAAP profit metrics so they can back out stock-based compensation. It's a non-cash expense, after all. Non-GAAP metrics make sense when there are one-time items that aren't expected to recur. In that case, they can give investors a better idea of true profitability.
Source Fool.com
