UPDATED 19:49 EDT / JUNE 01 2021

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Zoom beats expectations but its pandemic-fueled growth starts to wane

Zoom Video Communications Inc. posted strong fiscal first-quarter financial results today, beating expectations on earnings and revenue, but it was unable to meet the level of growth it showed during the height of the pandemic.

The company reported a profit before certain costs such as stock compensation of $1.32 per share on revenue of $956 million, up 191% from the same period one year ago. That was well ahead of Wall Street’s forecast of 99 cents per share in profit on $908 million in revenue.

That said, the company’s sales growth was some way down from the unprecedented gains it enjoyed just three months ago, when it reported a 369% increase in revenue.

Zoom, which sells a video communications platform for business and consumers, had become enormously popular as a result of the COVID-19 pandemic that forced millions of people to spend more time at home. Working face-to-face became a rarity, and platforms such as Zoom quickly emerged as essential fixtures in many people’s lives.

Now, with the pandemic seemingly beginning to wane, at least in increasingly vaccinated areas of the world, Zoom’s growth appears to have peaked and investors are watching very closely for signs of a slowdown. So it wasn’t a shock when Zoom’s stock initially lost 5% of its value on today’s report, before recovering to a 1% gain later.

Zoom founder and Chief Executive Eric S. Yuan (pictured) seemed unperturbed in any case, noting that the company delivered what was still a “very strong quarter” by anyone’s measure. “Our steadfast commitment to empowering customers to work and learn from anywhere with our expansive, innovative, and frictionless video communications platform continued to drive our results,” he said.

Zoom reported that its gross margin widened to 73.9% from 69.4% compared to the previous quarter, thanks to what it said was better optimization of the public cloud resources it uses. Zoom also highlighted strong growth with its Zoom Phone product, which bundles cloud-based telephony services with video calls and other tools, with 1.5 million seats at the end of April, up from 1 million in January.

Zoom’s customer acquisition was strong too. It said it had about 497,000 customers with more than 10 employees using its platform, up 87% from the same quarter a year ago. And it had 1,999 customers that contributed more than $100,000 in trailing-12-months revenue, up 160%.

Analyst Holger Mueller of Constellation Research Inc. said that it looks like Zoom has finally passed the inflection point of its stunning growth.

“The company is at a critical point now, where it has to find new growth drivers or otherwise, return to normal growth levels,” Mueller said. “Zoom could also benefit from some better cost management. Its administrative costs tripled compared to one year ago and that is not sustainable with slowing growth.”

Charles King of Pund-IT Inc. told SiliconANGLE he wasn’t too concerned by Zoom’s slowdown, because he said no one could reasonably expect it to continue along the stratospheric growth path it has shown. Rather, he said it’s far more notable how synonymous the Zoom brand has become with video calls and videoconferences.

“There are more than a dozen other similar services and solutions out there, including great grandaddy WebEx,” King said. “But most people reflexively refer to online video communications as ‘Zoom calls.’ As life slowly returns to a semblance of normality, the company’s growth rate may continue to decline. But absent some kind of disaster, Zoom’s brand recognition is likely to continue dominating the market and public perception.”

In any case, Zoom isn’t resting on its laurels. As it searches for more revenue opportunities, one of its main areas of focus has been to reach out to software developers.

During the quarter it announced the release of the Zoom Video Software Development Kit that developers can use to build Zoom’s video calling features into their apps. The idea is that a videogame application can take advantage of Zoom to allow in-game communication between players, while the owner of shop could receive calls through its application to help customers with their orders.

“We have also opened our technology portfolio to developers through our powerful video SDK and to businesses to expand their reach through Zoom Events,” Yuan said. “Work is no longer a place, it’s a space where Zoom serves to empower your teams to connect and bring their best ideas to life.

Last month, Zoom announced a new, $100 million venture fund to stimulate growth in its Zoom Apps ecosystem. Zoom Apps are basically third-party apps that can integrate within Zoom’s software, enabling productivity and other experiences. The company said portfolio companies will receive initial investments of between $250,000 and $2.5 million to build useful tools that can help Zoom users collaborate and communicate more.

Looking forward, Zoom expressed confidence that its second-quarter sales will land somewhere between $985 million and $990 million, well ahead of Wall Street’s forecast of $931.8 million in revenue. For the full year, Zoom sees revenue of $3.98 billion to $3.99 billion compared to Wall Street’s model of $3.8 billion.

Photo: Zoom

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