Zoom Is Holding Court

Zoom Is Holding Court

Zoom delivered on a high bar for the April quarter with off the charts user growth. Over the past three months, Zoom has schooled Microsoft and Cisco in the art of building a simple and affordable web conferencing platform. The Zoom brand has achieved verb status and will be around for the long-term.

While the tailwinds of remote work are in the early innings and sustainable, there remains the question of whether that trend is already reflected in the company’s current ~$60B market cap.

Takeaways:

  • Zoom’s user additions define vertical growth, with daily free and paid users increasing from 10 million per day in December to 300 million in April. This compares to Webex at 324m and Microsoft at about 200m.
  • The company is gaining market share, with users up about 350% over the past three months, compared to Webex up 200%, and Microsoft Teams up 100%.
  • Management would not speculate about changes in churn as stay at home restrictions ease. The company’s guidance is for churn to increase by multiple times historical rates in the months ahead.
  • The company’s top near-term priority is keeping the service available and secure, given the spike in demand. Video and voice will remain central to the platform, and, down the road, Zoom will address new features and opportunities, potentially around messaging and Slack-like workflow.
  • Historically, valuation does not matter for the highest-growth companies. However, Zoom’s valuation is orders of magnitude higher than other tech companies.
  • Zoom is trading at 33x this year’s revenue compared to Slack at around 20x, Microsoft at 10x, and BlueJeans, which was acquired in April by Verizon for about 4x revenue.
  • Also notable, General H.R. McMaster joined Zoom’s Board this quarter. This is likely in an effort to ease tensions between the government and Zoom regarding the company’s security and potential for misuse.

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