While many other tech firms have also reported accelerating growth over the last couple of months, some of the numbers that Zoom (ZM) just shared are uniquely staggering.
And while quite a lot of this good news (if not all of it) is priced into Zoom's stock at this point, there are probably some lessons here for investors about how far a product/service that gets the details right and is easy to adopt can take a smaller tech company that's competing against much bigger rivals.
With legions of newly-remote workers and learners using its video calling apps for the first time, Zoom reported its April quarter revenue rose 169% annually, a sharp acceleration from the January quarter's 78% growth. The company also guided for its July quarter revenue to be up 239% to 242%, and nearly doubled its fiscal 2021 (ends in Jan. 2021) revenue guidance to a range of $1.775 billion to $1.8 billion.
Some of the customer and user figures that Zoom shared were equally stunning. Among them:
- Customers with 10 or more employees more than tripled sequentially to 265,400.
- Meeting minutes among Global 2000 customers tripled sequentially.
- Daily meeting participants topped 300 million at their peak.
- Zoom's annualized meeting minutes run rate topped 2 trillion.
There were a handful of negatives that were shared as well. Non-GAAP gross margin fell nearly 15 percentage points sequentially to 69.4% thanks to soaring video call activity and a major increase in free users. And Zoom did note that customers with fewer than 10 employees -- a group that's more likely to pay for Zoom on a monthly, rather than an annual, basis -- accounted for 30% of revenue, up from 20% in the January quarter.
And of course, even with such tremendous growth, Zoom's current valuation isn't for the faint of heart. With its stock up more than 7% in Wednesday trading, Zoom trades for nearly 35 times its new fiscal 2021 revenue guidance.
Some of Zoom's April quarter metrics. Source: Zoom.
Still, it's hard not to be impressed by Zoom's top-line and customer growth, or by its ability to keep its services running well as it dealt with such a massive demand surge. And if one accepted a lot of the conventional wisdom that has gone around about how tech giants are unstoppable forces whose user bases, financial resources and technical talent make it easy for them to crush smaller rivals, Zoom should have never gotten to where it is today.
After all, video calling apps and services have been around for decades. And two tech companies with $100 billion-plus market caps -- Microsoft (MSFT) and Cisco Systems (CSCO) -- have offered popular videoconferencing solutions for businesses for a very long time, with a third -- Alphabet/Google (GOOGL) -- joining the fray in recent years.
Moreover, while Zoom's giant user base and third-party app integrations do give its platform some network effects, it's not particularly hard for businesses or consumers to adopt rival video calling apps and services. Compared with some other smaller firms that are currently holding their own against tech giants, such as Etsy (ETSY) or Spotify (SPOT) , Zoom's switching costs aren't that high.
Nonetheless, Zoom has seen meteoric growth, thanks in part to the attention it has shown to getting the little details about its user experience right -- everything from basics such as video quality and reliability, to integration with calendar services, to chat, collaboration and recording features.
The viral nature of Zoom's service also helped its cause. Users don't need a Zoom account to join a video call (they only need one to host a call); both businesses and consumers can adopt its free services; and businesses using paid plans are only charged a subscription fee for each employee who is licensed to be a host.
Zoom's user and customer growth will probably cool off in the coming months, as some employees return to their offices and consumers venture out of their homes more. But either way, what it's currently pulling off is a great case study in how getting the details right can pay off in a big way when the core market for your product or service hits an inflection point.
