Clearly, the market has voted in favor of Saul (and others) who sold out of Zoom as soon as they sniffed the slowdown coming. It is no coincidence that Zoom’s share price is ~40% away from its peak in October. In fact, Zoom’s share price has not even neared those level – not even during this year’s February high (it was still 22% off its all-time-high).
I think observing what the leaders of this board did with their Zoom position over the past 18 months provides one of the best case studies for those wanting to learn their techniques. For example, Saul had already built a 14% position by February 2020. GauchoRico indicated that month that he was “seeing ZM as a clear winner” and Retirementdough had built a sizable position since 2019 and by February indicated that “part of me thinks trimming might be wise, another part of me thinks that next earnings report could be crazy due to growth from coronavirus demand.”
By winter, many of the board’s leaders had reduced their positions, and warned others of the tough year ahead. Since then, Zoom’s share price has stagnated around $300-$350 while many of this board’s favorite companies have surged ahead. In addition to the Knowledgebase and all of the other tools we have here, analyzing the monthly actions taken with Zoom provides an excellent lesson.
That being said, I also don’t think that Zoom’s latest results disqualify it from being one of the companies discussed on this board. While it is not experiencing the hypergrowth stage of the S-curve that we seek here, I found these results to be more bullish than others did based on this discussion.
QoQ Growth
While 8.4% is not phenomenal, in percentage terms it was higher than Twilio’s [1] and Okta’s. This is the challenge that comes with the law of large numbers, 8.4% might look weak, but the net revenue added last quarter ($73.7M) is ~$7M higher than what Zoominfo, Datadog, Cloudflare, and Zscaler added last quarter…combined! All while improving its gross margins (once again), and generating impressive profitability.
I’m not trying to justify the slowdown – if we compare some of our favorite companies with the cloud behemoths (i.e. Salesforce, Workday) the net revenue added might show a similar effect; but I think it is a relevant comparison as Zoom’s top-line growth nears 40% annualized.
RPO Growth
Adding $18.3% in QoQ RPO growth is very encouraging, despite the seasonality that may be involved with Q1. At least, it shows that tailwinds are still strong, and it the “growth machine” is still firing strong. With another important quarter for renewals coming up, this is providing Zoom enough runway ahead of its future products – that we feared were too far out into the future. We got some clues on this when it was announced that Zoom already surpassed 1.5M seats of Zoom Phones sold, after celebrating reaching 1.0M during last quarter’s earnings call.
Guidance & Expectations
After Zoom’s extraordinary numbers last year, I remember there was a debate of whether Zoom will eventually turn into a 40% grower or a 60% grower. This quarter shed some light on what this year might entail. Zoom initially reported revenue guidance for the year to be $3.78B, only to raise it to $3.99B yesterday (5.6% raise). Let’s run an optimistic scenario and assume that Zoom raises the $3.99B by 5.6% again next quarter, and then again the following quarter. That would lead to full-year revenue of $4.45B, which represents 68% YoY growth.
But wait! That still has this quarter’s outlier of 191% revenue growth, so let’s back that out. Removing the Q1 numbers just reported ($4.45B - $956M) results in $3.49B. Comparing this to Q2 through Q4’s revenue ($2.32B) yields 50% revenue growth. Not too shabby after it’s insane growth last year.
I’ll reiterate the disclaimer that I’m not trying to “defend” Zoom from its deceleration – it was always going to be hard for them to get anywhere near last year’s numbers. Those that spotted that at the right time were rewarded handsomely; and those that didn’t have an opportunity to learn. However, I do think that Zoom’s latest report is encouraging – and there are encouraging signs for its shareholders.
[1] I realize Twilio experiences strong Q4 seasonality, but this includes their inorganic acquisition.
-RMTZP
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