Zoom sales up fourfold as Covid outbreaks keep workers at home
Video-conferencing company Zoom continued to ride the boom in working and learning from home as Covid-19 infection rates rebounded in recent weeks, lifting its revenue more than fourfold in the latest quarter.
The San Francisco-based company said on Monday that demand for video-conferencing drove its revenue to $777m in the three months to endOctober, up from $167m a year ago and far above the $693m Wall Street had expected.
Zoom’s share price fell 7% in after-hours trading, however, having already retreated 16% from the high last month. Its stock price is still up sevenfold on the year, valuing the company at about $136bn, or two-thirds as much as the communications group AT&T.
After Zoom became one of the biggest corporate beneficiaries of the pandemic, Wall Street has been struggling to understand how the company will be affected by a potential return to normal conditions next year.
CFO Kelly Steckelberg suggested changes in infection rates were reflected quickly in demand for Zoom services, with growth in Europe slowing early in the third quarter as health conditions improved, only to reverse later on.
The third-quarter revenue growth of 367% represented an acceleration from the 270% rate in the first quarter, as the pandemic hit, and 355% in the three months to end-July.
Zoom projected fourthquarter revenue of $806m$811m, which even at the top end of the range would be a slower year-on-year growth rate of 331%.
In another sign of the pandemic ’ s mixed benefits for Zoom’s business model, the company said its pro forma gross profit margin fell to 68.2% in the latest quarter, down 14.7 percentage points from the year before. Steckelberg put the deterioration down to a jump in the number of free users, particularly for home schooling, as well as the higher costs of handling the booming video traffic.
Steckelberg said Zoom was optimistic that some remote working habits would prove lasting and that many offices would operate in a hybrid style, creating demand for services that connect groups of workers in the office with those at home.
The company’s churn rate, or the percentage of customers who fail to renew contracts, had been lower than expected this quarter, she said, adding to its confidence about holding on to new customers it had gained this year.
Churn has become a bigger concern for investors partly because of Zoom’s growing reliance on smaller customers, who tend to pay from month to month rather than buying annual contracts. These customers accounted for 38% of revenue in the latest quarter.
During the third quarter, Zoom reported that it had continued to add to its base of large customers. It said it now had 433,700 customers with more than 10 employees — up 485% from the 74,100 it reported a year ago and 17% from the end of July. Of those, 1,289 customers are paying more than $100,000 each, a 136% increase from a year ago.
In the latest quarter, pro forma earnings per share — excluding stock compensation and some other costs — rose to 99c, up from 9c a year ago. Based on formal accounting rules, net income rose to $198.4m, from $2.2m a year before. Wall Street had been expecting pro forma earnings per share of 76c for the quarter.