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Zoom Foresees Robust Growth Even as Pandemic Pressures Ease

The future of video conferencing looks bright.
(Sundry Photography)
(Sundry Photography)
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Zoom delivered another strong quarter, and spelled confidence in its future growth even after the pandemic, WSJ reports.

Why It Matters: Zoom has been one of the biggest winners from the shift to remote work and schooling. Even with a chunk of its services free, its seen huge gains in its paid customers segment as well, as “large businesses and others tried to connect their workforce and with customers.” Now, after a year of Covid-19 restrictions, Zoom has a pretty solid footing to fend off bigger rivals such as Microsoft.

Numbers To Consider:

  1. Zoom’s annual revenue more than quadrupled to $2.65 billion in the fiscal year ending in January. It ended the year with a profit of $671.5 million compared to $21.8 million the year before.
  2. The company’s share price has more than tripled over the last four quarters, finishing at $409.66 after trading closed on Monday.
  3. Zoom customers with more than 10 employees ballooned almost sixfold to 467,100.
  4. Quarterly revenue flew up to $882.5 million from $188.3 million in the year-ago period. Profit also exploded to over $260 million from $15.3 million the year before.

Zoom isn’t done yet. The company is projecting more growth in 2021.

  • The videoconferencing platform said revenue would rise more than 41% this year to generate as much as $3.78 billion.
  • CFO Kelly Steckelberg also said the company is “evolving into a broader platform offering new services beyond just video-conferencing, such as webinars, chat and third-party applications.”

Looking Ahead: Zoom still has to grapple with rapidly growing costs as it tries to meet demand, including free accounts operated by school districts. It also has to contend with “stricter regulatory and legal scrutiny over access and storage of user data, for example, including its use of servers outside of the U.S.”

  • Zoom has $4 billion in cash, which it is open to using to “bulk up,” or add other ancillary businesses within its infrastructure.

Justin Oh:

I believe that Zoom will keep growing very strongly in 2021. Vaccinations won’t reach a critical mass until at least mid-year, and then it will take months (if not years) to bring back workforces. 

But once that happens, possibly over the course of 2022, I think Zoom will have a very tough time continuing their growth. Many companies will be looking to bring back their workforces at least into a hybrid model and Microsoft Teams, Slack, Google Meet, RingCentral, and other solutions will continue to compete on quality and price along the way.

Zoom ($ZM) is up big to $440 per share, which values the company at $128 billion, or 34x 2021 Revenues or 50x 2021 Gross Profit, which is a very steep valuation for a fundamentally commodity business with multiple possible headwinds in the next 8 quarters.

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