Zoom zooms up work from home charts
Zoom has confirmed it has been one of the biggest corporate winners from the coronavirus crisis, as the videoconferencing service reported a surge in new business that exceeded the most optimistic Wall Street expectations.
The US company’s revenue soared 169% to $328m in the three months to end-April, as employers worldwide signed on as customers to cope with an enforced move by most of their staff to working from home.
The news briefly lifted the company’s stock market value above $61bn — an increase of $42bn from the start of the year
— before the shares fell back in aftermarket trading.
The huge increase in demand for Zoom’s videoconferencing app made its performance over the past three months “one of, if not the, greatest quarter in enterprise software history”, said Alex Zukin, a software analyst at RBC Capital Markets.
The revenue surge was also reflected in its underlying profitability, with free cash flow topping $250m in the past three months, or more than double the amount the company generated in the previous 12 months combined.
The boom in new business came despite the weaknesses in Zoom’s privacy and security arrangements revealed in recent weeks. The flaws brought a wave of negative publicity and warnings from some employers for their staff not to use the service.
Zoom CEO Eric Yuan said the company opened its service to consumers “with good intentions” as the pandemic hit “without fully thinking through” the consequences.
Many of the new personal users had struggled to deal with a service designed for businesses with sophisticated IT departments, he said, adding: “As CEO I think I should have done a better job.”
However, the uproar — which includes complaints from US politicians and a review by the Federal Trade Commission — did not prevent Zoom from greatly expanding its market during the quarter. The company said it now has more than 265,000 paying customers with 10 or more employees, up 354% from a year ago. Despite the jump in new business, Zoom’s latest figures reveal that the coronavirus crisis has put a strain on its business model, which was designed mainly to serve large employers.
The cost of meeting the new level of consumer demand pushed its gross profit margin down from 80% to 69.4% in the quarter as it spent heavily on cloud services from Amazon Web Services and Oracle to handle the soaring traffic.
The number of people attending meetings over the service on any one day peaked at 300-million in April, up from 10-million in December 2019, the company said.
Zoom revealed that it has become far more reliant on smaller customers who pay month to month rather than buy annual subscriptions. The proportion of its revenue that comes from these customers has risen to 30% from 20% before the crisis, exposing the company to what it said is likely to be higher customer churn in future.
The shift to more short-term business added to questions about how lasting the pandemic-induced videoconferencing boom will prove to be, though Yuan said he believes the potential market is now far bigger than before the pandemic.
Zoom’s main goals are to maintain the quality of its service as it adjusts to a much higher level of demand than it expected, he said, and to accelerate attempts to cross-sell a new voice service to its much bigger base of videoconferencing customers.
In a call with analysts, the company laid out a comprehensive vision that involves selling a full range of video, voice and chat services to a wider customer base that includes businesses, consumers and “prosumers”, said Zukin at RBC.
The wave of new business in the latest quarter pushed Zoom’s growth rate to more than double its level before the crisis hit, and topped most analysts’ forecasts for revenue of a little more than $200m.
The company predicted its revenue for the year as a whole will reach up to $1.8bn, up from $623m in 2019. Its pro forma earnings per share of 20c were up from 3c a year before and topped estimates of 9c.