The clichés write themselves. Zoom Video Communications’ (Nasdaq: ZM, Rated “C-”) business is zooming.
The San Jose, Calif.-based company reported Wednesday that revenue growth surged 169%, year-over-year. Cash flow jumped from operations jumped from $22.2 million in the first quarter to $259 million through the second quarter.
Zoom is minting money, and it came out of nowhere.
It is one of those rare businesses. Its user experience is so simple, so clean that almost anyone can pick it up and broadcast themselves and their friends and coworkers in minutes. Yes, it has become a verb, with software designed for non-techies. It just works. That’s a good thing.
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Too many tech companies get this wrong. In their zeal to lock-in customers, managers often forget the appeal of simplicity and openness.
Most Zoomers, for example, are using iPhones despite the fact they have a perfectly good, built-in video conferencing software on their device. It’s called Facetime. But Facetime usage is not booming … Zoom is.
Zoom disrupted video calling on iPhones because the experience is cleaner and it’s easier to hook up with friends who don’t have iPhones.
Business users prefer Zoom over Teams and Meet, the latest video conferencing applications from Microsoft (Nasdaq: MSFT, Rated “A-”) and Google, for the same reasons. Zoom is simply easier to use, and it works better without the ecosystem lock-in.
And despite recent worries about privacy and cybersecurity, the company continues to win business from large enterprises.
The official corporate press release indicates 279 enterprise customers with billings of greater than $100,000 per year.
The strength of its paid business is reflected in guidance for future quarters. Zoom managers now expect earnings per share of $1.21 to $1.29 during fiscal 2020, on about $1.79 billion in sales. That’s up from March when managers predicted earnings of 42 cents to 45 cents, on about $910 million in revenues.
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A Needham analyst told CNBC that he had never seen growth like this in his 20 years covering technology companies. Other analysts, CBNC notes, believe the company grew its monthly mobile active users from 14 million in March, to 173 million as of May 27.
That bonkers growth gives credence to the idea that in the digital era, relatively small companies can still compete with larger businesses if they build better applications. Zoom managers are definitely using all of the digital tools available.
All of Zoom’s business run seamlessly in the cloud. It can be scaled up or down to meet demand.
CFO Kelly Steckelberg said the company saw gross margins decline from 82.7% to 68.4% in the second quarter, as it sucked up more bandwidth from Amazon Web Services, its cloud partner. In the future the company plans to build stand alone data centers.
Shares trade at 340 times forward earnings and 85.6 times sales. The business clearly has momentum. So far, the stock has surged 205% in 2020.
Best wishes,
Jon D. Markman
