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For anyone long Zoom, thinking about adding, or writing it off. Today $ZM is down 40% from its ATH from only a couple months ago.
With some analysts projecting only 35% growth next year, I think Zoom has potential to surprise to the upside in 2021.
Here's some reasons why:
With some analysts projecting only 35% growth next year, I think Zoom has potential to surprise to the upside in 2021.
Here's some reasons why:
$ZM will hit ~$2.6bn revenue in FY21 (this year), up +325% YoY. Their likely Q4 exit rate will be >$850m (+37% on their entire FY20 revenue).
$ZM Q4 exit rate annualised delivers +30% growth next year, with softer YoY comps till mid Q2 21. This is $ZM's baseline growth /1
$ZM Q4 exit rate annualised delivers +30% growth next year, with softer YoY comps till mid Q2 21. This is $ZM's baseline growth /1
In other words, Zoom will 'grow' revenue +30% YoY in 2021 without any sequential growth.
So how does Zoom grow on top of the baseline?
Zoom's revenue can be broken into three customer segments: Enterprise, <10 employees and >10 employees /2
So how does Zoom grow on top of the baseline?
Zoom's revenue can be broken into three customer segments: Enterprise, <10 employees and >10 employees /2
1.Enterprise customers made up 18% of revenue in Q3 FY21
Only 12% penetration into the Global 2k and ongoing success winning customers from Cisco (Zoomtopia)
E2E encryption and Gartner accreditation in Q3 potential tailwinds for customers holding off due to security concerns/3
Only 12% penetration into the Global 2k and ongoing success winning customers from Cisco (Zoomtopia)
E2E encryption and Gartner accreditation in Q3 potential tailwinds for customers holding off due to security concerns/3
2. Customers <10 employees, 38% of revenue in Q3
Mix shift from <20% of revenue in Q4 FY20. $ZM pivoting from B2B to B2C opportunity with this shift
Most vulnerable to churn post-Covid. $ZM focusing on conversion from monthly to annual contracts to create stickiness /4
Mix shift from <20% of revenue in Q4 FY20. $ZM pivoting from B2B to B2C opportunity with this shift
Most vulnerable to churn post-Covid. $ZM focusing on conversion from monthly to annual contracts to create stickiness /4
3. Customers >10 employees, 44% of revenue
433,700 customers up from 81,900 in Q420, +430% in just 3 quarters!
Revenue contribution of segment 'only' +264% in same period. Monetisation opportunity, inc. 125,000 free schools (2nd fastest growing vertical behind Govnt) /5
433,700 customers up from 81,900 in Q420, +430% in just 3 quarters!
Revenue contribution of segment 'only' +264% in same period. Monetisation opportunity, inc. 125,000 free schools (2nd fastest growing vertical behind Govnt) /5
Zoom Phone
TAM of $23bn by 2024
22% of customers new to $ZM, 500k+ seats sold TTM with 8x traffic increase.
FASTEST growing product. Cross sell & new customer opportunity.
'We absolutely expect Phone to be a key driver for next year' (CFO Q3 call) /6
TAM of $23bn by 2024
22% of customers new to $ZM, 500k+ seats sold TTM with 8x traffic increase.
FASTEST growing product. Cross sell & new customer opportunity.
'We absolutely expect Phone to be a key driver for next year' (CFO Q3 call) /6
Phone contd…
Slow sales cycle and migration (ie. delayed contribution into 2021)
Pent up demand for when offices reopen (& for Zoom Rooms)
Customer savings using Phone due to cost of alternate vendors & maintenance of on premise platforms & licenses - economies of scale /7
Slow sales cycle and migration (ie. delayed contribution into 2021)
Pent up demand for when offices reopen (& for Zoom Rooms)
Customer savings using Phone due to cost of alternate vendors & maintenance of on premise platforms & licenses - economies of scale /7
Monetisation. Zoom's go to market strategy of 'land and expand' includes prioritising customer happiness & offering negotiable licensing, while free hosts are an important part of the ecosystem. This may engender customer loyalty, reduce churn and provide LT 'pipeline': /8
Monetisation of free schools
Active host licenses. Zoom offers some customers flexibility of license commitment, with a true-up of these mid-21
Pricing, new features, add on plans, prep for post-Covid with upselling of Webinar, Rooms & Smart Gallery (eg Rakuten in Q3) /9
Active host licenses. Zoom offers some customers flexibility of license commitment, with a true-up of these mid-21
Pricing, new features, add on plans, prep for post-Covid with upselling of Webinar, Rooms & Smart Gallery (eg Rakuten in Q3) /9
CFO on active host licenses (Q3 call): "
"After a year, we would look at where their high watermark was of usage for those hosts and that would be their true-up then for the next year."/10
For more detail of active host licenses: https://onlinezoomappdownload.com/discounted-license-for-company-wide-deployment-active-host-license/
"After a year, we would look at where their high watermark was of usage for those hosts and that would be their true-up then for the next year."/10
For more detail of active host licenses: https://onlinezoomappdownload.com/discounted-license-for-company-wide-deployment-active-host-license/
International expansion.
Q3 revenue +629% YoY. 31% of total revenue (vs 20% of revenue in Q320).
Strong growth across all segments.
Phone - 87% of contribution from US. Aggressive intl. expansion (from 18 to 43 countries in 5 months) /11
Q3 revenue +629% YoY. 31% of total revenue (vs 20% of revenue in Q320).
Strong growth across all segments.
Phone - 87% of contribution from US. Aggressive intl. expansion (from 18 to 43 countries in 5 months) /11
Growth through channel partners, eg Lumen Technologies.
Integration of services through large channel partnerships as they shift to cloud will open new avenues for growth and win new Enterprise customers.
'Certainly…it will be a driver for growth next year' (CFO Q3 call) /12
Integration of services through large channel partnerships as they shift to cloud will open new avenues for growth and win new Enterprise customers.
'Certainly…it will be a driver for growth next year' (CFO Q3 call) /12
Level of churn.
Contd. macro pressure on companies to cut costs and realised Travel & Subsistence savings during the pandemic means that business travel is unlikely to revert to prior levels post Covid, combined with a lasting hybrid remote working environment /13
Contd. macro pressure on companies to cut costs and realised Travel & Subsistence savings during the pandemic means that business travel is unlikely to revert to prior levels post Covid, combined with a lasting hybrid remote working environment /13
Beyond 2021?
OnZoom will be a focal point for R&D expenditure next year as $ZM looks to capitalise on its new consumer opportunity
Zoom Apps: building an overall communications platform
$ZM can grow to the vision of its management. Yuan sees the opportunity in its platform /14
OnZoom will be a focal point for R&D expenditure next year as $ZM looks to capitalise on its new consumer opportunity
Zoom Apps: building an overall communications platform
$ZM can grow to the vision of its management. Yuan sees the opportunity in its platform /14
Valuation
Zoom's fwd P/S ratio of Q421 ($850m) annualised is 29x, vs 23x in Q420
Zoom has a much greater opportunity & positioning today than it did 12 months ago, with strong secular tailwinds & a global paradigm shift/15
Zoom's value of Free Cashflow: https://twitter.com/chriszeoli/status/1334584055300411395
Zoom's fwd P/S ratio of Q421 ($850m) annualised is 29x, vs 23x in Q420
Zoom has a much greater opportunity & positioning today than it did 12 months ago, with strong secular tailwinds & a global paradigm shift/15
Zoom's value of Free Cashflow: https://twitter.com/chriszeoli/status/1334584055300411395
369% YoY revenue growth means something - product market fit. Can management which disrupted the market in the first place keep on executing above expectations? /16
With the sentiment shift Zoom will continue to be perceived as just a 'Covid stock' for the time being. 2021 could be a pivotal year that this perception is either confirmed or broken /17
Disclosure: I am long Zoom. This is just my opinion and not a recommendation, but offering an alternative perspective to the general bearishness I see on here on Zoom, and why it might yet still surprise.
