Post-earnings stock plunge and slowing growth—where does Zoom go from here?
In 2020, when it comes to a truly remarkable software tool, Zoom undoubtedly takes the crown. The COVID-19 pandemic propelled Zoom to swift popularity, making it a cornerstone of the cloud computing industry.The most rapidly rising starAlthough it skyrocketed in popularity last year, Zoom has actually been operating for nearly a decade.
April 2011,ZoomSaasbee was incorporated under Delaware law in the United States; in May 2012, the company was renamed Zoom Video Communications, Inc.
Looking at the company’s renaming history, as early as 2012, the company shifted its development focus to "video communication" Within this niche segment of the conferencing systems market, after a decade of development, our company has delivered a video-first communication platform that fosters joy and fundamentally transforms how people interact."
Since the outbreak of the COVID-19 pandemic in 2020, the company has...Rapid Growth in User Base and Revenue, and the stock price also, from January to October 2020,Ten months, an increase of nearly8 times, becoming the undisputed star.
Figure: Zoom's stock price performance from its IPO to October 2020
However, since October of last year, Zoom's stock price has trendedCut shortThis trend reflects underlying market concerns that Zoom's growth will slow once the COVID-19 pandemic is brought under effective control.
Figure: Zoom's stock price performance from October 2020 to the present
After the market closed on August 30, 2021, Zoom released its latest quarterly results, reporting revenue for the second quarter of 2021.USD 1.02 billion, year-over-year growth54%, net profitUSD 0.316 billion, representing a year-over-year increase of 70.49%.
Although the growth rate for the current quarter is still decent, the company's outlook for the next quarter and the full year isBelow market expectationsZoom forecasts third-quarter revenue of USD 1.015 billion to USD 1.020 billion, up 31% year over year—slightly above analysts' consensus estimate of USD 1.013 billion—and EPS of USD 1.07 to USD 1.08, below the analysts' expectation of USD 1.09.Directly prompted several major banks to cut the company's target price.Deutsche Bank reduced its price target from $375 to $350, and UBS Group lowered its price target from $345 to $315, among others.
The steep decline is now a reality, leaving investors with the following questions:
1. How strong were Zoom's second-quarter results, and does the company still have growth potential moving forward?
2. Where should Zoom head in the post-pandemic era? What does the future hold for Zoom? Will mergers and acquisitions become Zoom's only viable option?
With these questions in mind, let’s conduct an in-depth analysis of Zoom's current situation and future prospects.
Latest Quarterly Performance Analysis
Figure: Zoom's quarterly revenue (in USD billions) and growth trend (%).
Figure: Zoom single quarterNet profit(in billion US dollars) and the growth rate trend (%）
Looking at a single quarter, Zoom achieved operating revenue.US$1.021 billionYear-on-year growth hit its lowest level since 2018, while net profit reached RMB 317 million, the highest single-quarter figure on record. The sharp drop in the stock price, meanwhile, stems primarily from the slowdown in revenue growth.
From $60 million in revenue in the first quarter of 2018 to the second quarter of 2021, Zoom's revenue grew over a span of 13 quarters.17 times, Zoom's revenue growth has been the fastest in the US stock SaaS sector over the past three years, andThe time it takes to achieve profitability is also among the fastest on record for cloud computing companies.。
FromR&D investmentLet's take a look at Zoom'sR&D investment has always been relatively low.This is also the biggest concern among investors, who believe that Zoom's technological barriers are not high. By comparison, let's look at the R&D of another cloud computing leader, ServiceNow, whose market capitalization is similar to Zoom's.
Figure：ServiceNowQuarterly R&D Investment Overview
In the most recent quarter, ServiceNow's R&D expenditure accounted for 23.63% of its revenue, while Zoom's was only 8%.From the perspective of R&D intensity, Zoom does indeed lag significantly behind the leading cloud computing companies. Does this imply that tools like Zoom face no technological barriers to entry?
The author believesZoom has managed to stand out in the highly competitive audio and video conferencing market thanks to its unique strengths.
In the traditional video conferencing market, the first category isCore-Device-Centric Players, including Cisco, Polycom, and others. These types of conferencing systems rely on dedicated audio and video equipment, proprietary networks, etc., leading to high overall costs and significant maintenance expenses. Such large-scale conferencing systems involve numerous procedures, such as equipment debugging, personnel access, and conference control.Extremely prone to issues；
The second category isNew Forces Represented by ZoomBy delivering an exceptional user experience at a more affordable price, Zoom quickly built a large base of core users—making multi-person video conferencing easy and straightforward.In the author’s view, this represents Zoom’s competitive moat.Zoom has addressed many of the pain points traditionally associated with audio and video conferencing software systems.
The author believes that during last year's pandemic, everyone had the experience of participating in various video conferences, and the author himself has used platforms such as Zoom, Tencent Meeting, and Alibaba DingTalk.Overall, the Zoom platform feels the most concise, stable, and easy to use.。
Key Indicator Analysis
01
From the perspective of customer composition
Year-over-year increase in the number of customers with a paid ARR of over USD 100,000241%, including 21 clients with annual revenues exceeding USD 1 million.
In August of this year, it will reach2 million seats。
26 customers have paidOver 10,000 seats(An increase of 8 in the first half of fiscal year 2022)
Customers with incomes over US$100,0002,278，Increased by 131%;
Customers with 10 or more employees504,900，Increased by 36%.
As can be seen from the customer distribution data above,While Zoom continues to maintain its strong foothold in small-business sales, it has also made solid progress in winning major enterprise accounts, with its large-client strategy steadily advancing.
02
FromNDRFrom an indicator perspective
For 13 consecutive quarters, NDR retention has remained at130%Above is a remarkably impressive metric, indicating that after customers subscribe to Zoom,By continuously increasing the number of subscription seats or adding functional modules.。
03
From the perspective of the regional distribution of income,
From the perspective of regional revenue distribution, revenue in the U.S. region increased year over year.50%while regions outside the United States are growing even faster, with a year-on-year increase of 62%, the proportion of revenue from the U.S. region has been steadily declining, indicatingZoom's expansion outside the United States is accelerating.。
04
FromPROandCPROFrom an indicator perspective
Remaining Performance Obligations (RPO): The sum of short-term, long-term, and unearned deferred revenue. Current remaining performance obligations (CPRO) represent the amount of revenue the company expects to recognize over the next twelve months.
Unbilled deferred revenue：Unbilled deferred revenue refers to contractually stipulated or committed orders under subscription, service, and maintenance renewal arrangements and multi-year billing plans for which the associated deferred revenue has not yet been recognized. In accordance with FASB accounting standards, unbilled deferred revenue is not presented as accounts receivable or deferred revenue in our condensed consolidated balance sheet.
From the PRO indicator perspective, year-on-year growth in the second quarter66%Unbilled revenue increased 74% year over year to $1.168 billion, deferred revenue rose 59% year over year to $1.178 billion, and CPRO grew 58% year over year to $1.609 billion—representing the revenue Zoom is expected to recognize over the next twelve months. Meanwhile, the NC-PRO metric surged 85% year over year to $737 million.
FromKey IndicatorsLet's take a look at Zoom'sClear trend among key accountsHowever, NDR metrics continue to deliver exceptionally strong performance; that said, with the base continually rising, a slowdown in revenue growth is inevitable.
But fromIndustryFrom this perspective, the UCaas industry will continue to maintain9%Growth rate of around,Zoom still has room for growth, but a slowdown is inevitable.。
Therefore, Zoom is continuously exploring a more diversified product portfolio and potential external acquisitions; so,Will these efforts enable Zoom to identify a new growth driver?
Next, we will conduct a detailed analysis.Zoom's platformization efforts and external M&A.
Attempts at Business Diversification
Following its meteoric rise in popularity last year, Zoom embarked on a series of diversification initiatives to reduce its reliance on a single revenue stream. The company aims to leverage the Zoom platform as a foundation for developing a suite of new tools, transforming Zoom into a more comprehensive ecosystem rather than merely a video-conferencing application.The specific attempts mainly include the following aspects:
1
On June 9, 2021, the company proudly launched the Zoom Phone device—a comprehensive solution that enhances both Zoom Phone and Zoom Meetings experiences.
Zoom Phone devices are a type ofDedicated office endpoint that supports both Zoom Phone and Zoom Meetings featuresThese devices enable users to effortlessly collaborate with colleagues and clients by leveraging advanced video, audio, and content-sharing capabilities. Zoom Phone will offer three models: the Poly CCX 600 with a camera, the Poly CCX 700, and the Yealink VP59, all delivering an exceptionally user-friendly experience that allows users to easily select the most appropriate communication solution for each call.
2
On July 21, 2021, the company launched the Zoom Events platform for creating virtual experiences.
Zoom Events meets all your needs, enabling you to confidently design, host, and manage virtual or hybrid events—whether it's a large-scale sales conference, a one-of-a-kind customer experience, an internal company event, a trade show, or a corporate summit.
By using Zoom Events' one-stop service to create virtual events, you can:
The company launched the Events platform primarily to expand its use cases beyond just work meetings.Increase the number of usersThereby generating more diversified revenue streams.
3
On July 21, 2021, Zoom officially launched Zoom Apps: the ability to use your favorite apps directly within Zoom.
Zoom Apps willCombine customers' favorite apps with video communication features.Customers can enhance their Zoom experience with a wide range of apps that cover diverse use cases, including whiteboarding, project management, note-taking, gaming, and more!
Zeus Kerravala, Chief Analyst at ZK Research, stated that Zoom Apps enable everyone in a meeting to access and use the same application, therebyImprove work efficiency. You can also directly share and send Zoom Apps to other participants during the meeting, therebyPromote collaboration and interaction。
Zoom Apps has expanded the offerings in the Zoom App Marketplace, now featuring more than 50 Zoom applications that cater to both enterprise and consumer use cases—ranging from whiteboarding and project management to note-taking and video gaming—and with many more currently in development and slated for release soon.Some of the Zoom applications currently available include the following:
The launch of Zoom Apps is intended to transform Zoom into a PaaS platform for productivity tools, enabling users to seamlessly integrate Zoom with a wide range of CRM and collaboration software, thereby making Zoom aMore abundantthe entry point, keeping users on Zoom for longer。
4
On August 12, 2021, the Zoom Community was officially launched!
Zoom is proudly launching Zoom Community, a space for everyone to come together and connect.By following simple, easy-to-understand instructions, Zoom users can find what they need with just a few taps.
Product Forum: In every Zoom product forum, Zoom welcomes community members to ask product-related questions, share knowledge and technical expertise, and help other community members resolve their queries.
Industry Forum: Visit Zoom's Education and Healthcare Industry Forums to collaborate with community members in your network. Share success stories and practical tips, and seek advice.
Fun Rewards: Join the Zoom Community now—earn points for meaningful contributions, climb the reputation leaderboard, unlock badges, and put yourself in the spotlight on the leaderboards.
Fun Center: Explore Zoom's event-driven user communities, share your excitement about participating in Zoom events, connect with peers after the event, and highlight your favorite moments from the experience.
Whether it's Events, apps, or the community, Zoom aims to enrich its offerings and use cases through a more comprehensive suite of tools. We believe these initiatives are promising; however, given their recent launch, their long-term impact will require ongoing monitoring, and PaaSThe competition we face is also very intense., Microsoft, Salesforce, and others all have similar PaaS platforms.
Acquisitions through external expansion: Proposed acquisitionFive9Entering the Contact Center Business
On July 20, Zoom entered into an acquisition agreement with its wholly owned subsidiary, Summer Merger Sub, Inc., and intelligent cloud contact center provider Five9.
Under the agreement, Zoom will acquire Five9 in an all-stock transaction.Zoom CEO Eric Yuan stated that this acquisition complements Zoom Phone, which will propel Zoom into the $24 billion contact center market.Zoom and Five9 share many similarities, as Zoom is squarely poised to capitalize on the cloud transformation opportunity, with both companies aiming to secure a leading position in this burgeoning market, which is expected to reach US$86 billion.
The business domain in which Five9 operates is called the Contact Center, which meansContact CenterThe company is a provider of cloud contact center software. Its mission is to help organizations transform their contact centers into exceptional customer engagement hubs, while enhancing business agility, boosting operational efficiency, and delivering cost advantages. The cloud platform offers a suite of easy-to-use applications that enable tighter integration with customer relationship management systems in the cloud.
The CC business is actually already a very mature operation, but currently the industry is facing...Nearly 70%The market is still mainly localized, with less than 30% being SaaS deployments, namely CCaaS. Currently, Five9 is the leading enterprise in CCaaS, with a market share second only to Cisco, Salesforce, and Avaya, and currently occupies6%Market share on the left and right.
FromRevenue SideJudging from the performance, five9Over the past decade, revenue has consistently posted year-over-year and quarter-over-quarter growth, indicating that the industryCloud transformation continues to advance rapidly., the company continues to steadily gain market share.
FromGrowth rateJudging from its performance, Five9 has essentially maintained quarterly revenue growth over the past decade.20%As outlined above, since last year, the company's performance has accelerated markedly, driven by the COVID-19 pandemic.Still worth watching in the post-pandemic era.。
Zoom Acquires Five9In the future, we will deeply integrate five.9's CCaaS solution andOne's ownof UCaasSolutionConduct integration,BuildForm aMore comprehensiveUCCaaS Solution, the two parties can also achieve significant synergy.
Track industry trendsAs we can see, the U.S. cloud computing industry has now entered a new phase of M&A-driven growth. In particular, for many well-established, large cloud providers, pursuing acquisitions to identify new avenues for business expansion has become the preferred strategic approach.
It's the same for both Salesforce and Adobe. In recent years, Salesforce has been making large-scale acquisitions, including its $15.7 billion acquisition of Tableau in 2019 and its $27.7 billion acquisition of Slack in 2020, allThe goal is to leverage synergies to expand business lines, enhance customer loyalty, and build a more robust and comprehensive cloud service ecosystem.
Therefore, for utility software,Horizontal and Vertical Business Mergers and AcquisitionsThese are the two typical viable paths. For Zoom, the company is already the market leader in the UCAAS sector with a market share of over 50%, and competition in the industry is intensifying. With Microsoft Teams' growing influence, the company can only pursue more diversified M&A at the business level.Acquiring Five9 is indeed a solid move, and the future looks promising.
Future Prospects
FromValuationFrom this perspective, Zoom's current PS valuation has fallen to its lowest level since its IPO, currently aroundApproximately 22x PSCompared with mature cloud computing companies such as CRM and Adobe, the company's valuation is still relatively high. If revenue growth continues to slow, there is still a risk that the company's valuation will continue to decline.
Looking ahead, the key focus for Zoom will be the progress in advancing its diversified product portfolio and pursuing strategic M&A initiatives.9Future consolidation will occur, but in the short term neither of these two primary drivers is pronounced, soWe maintain a cautious outlook on Zoom in the short term and recommend continuing to adopt a wait-and-see approach; however, it is still advisable to wait before initiating any bottom-fishing.。
I'm Mr. Yan Cai—see you in the comments!
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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