Zoom results - my thoughts

While I am confident that at least 30% of WFH will remain, I think the overall volume of video calls will be reduced significantly.

golfcaddy,
Zoom charges by the seat, not the volume of calls. If half the people or a third are still working from home, the customer company will still keep all its seats so the guy in the office can still be on a conference call with the guys working from home. The volume of calls doesn’t matter. And most companies will probably keep their huge conferences online where they got five to ten times as many participants as they used to get with in-person calls.
Saul

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Okay, Zoom growth is going to slow, but let’s not get carried away. Assuming we all go back to the office, do we all go back to the same office? Not for me, and I suspect not for many. We have offices all over the country and the world.

Other than people walking into my office, I had very few in person meetings. Similarly, my firm cut down on business travel well before covid. I used to have telephone conferences all day. Those calls are now mainly Zoom calls and will continue to be Zoom calls now. How about calls with people outside your firms? I think the vast majority of those calls will also continue to be Zoom calls. If 20% more of the workforce works from home on a rotating basis going forward (accelerated shift as a result of covid), you will need to do Zoom calls with the group that includes them. I don’t think the cut back will be nearly as big a people think. People will continue to use Zoom.

Mike

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What Zoom offers is a very singular product. I mean it’s not diversified offering like Google, Amazon, Facebook,Microsoft where their products are suitable for most people. So their TAM is massive. Zoom is not for everyone. I personally don’t like to do video calling. It feels awkward and different than real person to person meeting. When in person, there’s moment of silence, I can look away and pretend to think. In Zoom, you just stare each other in silence. It’s not just Zoom. I tried video calling on the phone. It’s not my thing. I prefer voice and messaging app. For this reason, Zoom’s TAM is very limited. Zoom was growing at 100% per year without COVID. COVID brought Zoom a little more than 2 years worth of growth into a single year. 200% to the power 2.3 (2^2.3 = 500% increase). Let’s assume originally Zoom can continue grow at 100% for 5 more years. and Zoom can resume 100% growth after COVID, its stock has to flat line for 2 years before go up again because of the limited TAM. The more a company grows, the less growth is left. It’s life and death in everything. It borrowed 2 years of growth from the future. This is the best case scenario. or worst, the stock continue its current down trend which started since Oct 21,2020 BEFORE the Nov 29, earning. Mr.Market knows something and is very efficient in normal market condition.

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I for one expected Zoom to handily beat expectations because I estimated that new corporate users would continue to sign up at an accelerating rate or at least at a rate comparable to the prior quarter or nearly that. It did not happen. My best guess is that those who were motivated to sign up by this year’s events have ,for the most part ,done so and the “bloom is off the rose” so to speak. Individual users were never going to be a preponderant contributor to revenue so I believe that nothing has changed there.

FWIW I’ve been selling ZM for the past few days taking ZM from 20% to 16% to13% of my portfolio and another reduction today to 9%. I was concerned even prior to the earnings report but in my usual timid fashion I procrastinated.

I’m not sure where to put the proceeds. . I need over 100K for taxes. Some will go to increase DOCU and some to TDOC . Maybe I’ll nibble at SNOW which I have liked from the outset because of its startling numbers.That however could be an artifact of its relative newness. And perhaps there are big traders trying to entice us poor fools so they can make a quick buck. There is also a thought that AYX may rejuvenate as a number of folks have suggested.

I will have to sleep on it.

cheers

draj

Awhile back I read the following on this board, and saved it in my “investing advice” folder:

I have spent the last 31 years of my life studying leadership. What I know is that companies grow or shrink to the size of their leadership, almost regardless of products and markets. If a leader of a $1 billion company has the vision breadth, depth, executive skill and passion to lead a $100 billion, he will find where the TAM is and bring his company along.

Consider an online bookstore company in the late 1990s with thousands of upstart competitors doing online sales. Some asked, how big can Amazon become by selling books? A few knew he might eventually sell other online retail products. No one saw that Jeff Bezos could expand that company into AWS, kindle, prime, and much more, and become a multi trillion dollar company.

It’s not sufficient to have a wonderful idea or a wonderful product.

For awhile longer, I’m personally going to bet on a guy that:

  • Found their customer base explode in the span of a few weeks
  • Brokered deals with AWS and Oracle to keep user experience virtually flawless
  • Made the brand so popular that NO ONE wants to use WebEx or Teams or Skype or FaceTime or Blue Jeans
  • Kept his integrity during attacks on his character/heritage, and within a week or two made it a non-existent part of the story
  • Was open/transparent about their security issues and within a few weeks made them a non-existent part of the story

Brandon

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Reality vs Perception

I joined a top Fortune 500 Company after a long career at MSFT. Neither does MSFT use ZM or my present company. AFAIK, GOOG also banned ZM and productivity has not been affected in any of these companies where the vast majority of employees are WFH. All these companies are doing very well and are being extremely productive through the pandemic.

Does that reflect something about the mission critical need for ZM in enterprises? Keeping in mind that ZM’s main target are enterprise customers. And I don’t see how they are going to monetize the free customer base that signed up during the pandemic.

I started reducing my ZM position in the last few weeks and have been buying a lot of DOCU and some CRWD. CRWD is an exceptionally large holding for me now. While adoption of DOCU immediately helps in cutting costs and supports working from anywhere. Once businesses adopt DOCU they are not going to go back to the old ways of signing documents. I personally have signed a few documents with DOCU and almost would have worked for DOCU a couple of years back ( but said no to the interview, probably a bad decision in hindsight).

Cheers!

ronjonb

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Is it possible that, while Zoom may have added everything it can in the short term, they are signing up those enterprise customers now? These deals don’t happen overnight, especially when these companies already have something in place. Given how quickly companies and individuals had to shift, it seems to me, that those who didn’t have to shift right away could take their time. If we aren’t going back to the good ol’ days, and virtual meetings will be the norm, then there will be continued adoption of the best technology by anyone and everyone who requires a better experience. Why would any new companies ever sign up with Cisco when Zoom and Zoom Phone are available?

I have trimmed my position a few times, and will continue to reduce, but I don’t think we’re done here. I think it will be difficult to monetize free users going forward, but if the technology is as good as we think it is, over time, enterprise will make the shift. It just takes time. If anyone can do it, I believe this is the team that can. Am I crazy to think we could see a reacceleration in the coming months, as things go back to normal? This was a great company before the pandemic, too. Beth Kindig had a great observation that what made FAANG stocks what they are is their ability to reach everyone on the planet. Zoom did that in months. I know we have to look at the numbers, and what is happening now, but are we being too hasty here?

Does anyone know what the average length of a WebEx (or Microsoft or Google or Blue Jeans) contract is?

I can’t find anything on whether or not the Peloton partnership includes all of their live video distribution, or just the company’s internal communications? Did they share this?

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For long time reader on this board, I think it’s understood that we should never fall in love with a stock or a company. I know some people developed emotional attachment to companies after a long time of holding and never want to sell. for example: Apple, Amazon, Tesla. But do not equate company size with investment performance. Big number as result of compounding. Investment return is the % change in share price not because the market cap is big. Big market cap is the result not the cause of good investment return.

When the growth prospects changed, in ZM’s case, the stock priced in so much growth that future growth may not be the best and certainly there are better opportunities out there. For some of us, when we move out of ZM, it doesn’t mean we say: the CEO or company is bad. Sometimes bad things happen within the company. It’s not the case for ZM. In fact, ZM offers a great product to help many people to connect in one of the most difficult time in recent history. That is why it grew so much 2 quarters ago.(100% QoQ!)Many people agreed its growth is too ahead of itself. That’s why it’s share went down so much in the past 2 months.

We are not trying to find the next Amazon and ride it out 20 years to find out. We are trying to obtain the best possible return consistently in a predictable way. To do that, we concentrate in a couple stocks (5 to 10) and watch them closely and adapt according to conditions. The reward is these kind of investors obtain extraordinary annualized return. It’s not a one time trick. It’s a skill developed through experience, observations, and logical, independent thinking. This is why this board is special. There are lots of sensible people here. It’s not a yahoo board where people think subjectively and believe things what they want to be.It’s self deceiving.

For those of us finally decided to move on from ZM, we are not being hasty. We are quite slow actually, 2 months slower than the market. That’s okay. We are not timing the market. We are not bag holders. We don’t have to 100% accurate in when to get in and out of a stock. We just need to be correct about future return.

If stock price moved too fast in a short period of time, we have to look deeper.

Let’s ask a question, can Zoom becomes a trillions dollar company and how long does it take from now?

This calculation is estimate and not 100% correct so if there are any major mistakes in the math, please point it out.
It took aggressive Jeff Bezo’s AMAZON 21 years to reach 1 trillion in Sep, 2018 since IPO! How do I know it’s Sep, 2018? I just use the ratio of 1 trillion over current market cap 1.58 T and multiple the ratio to current stock price to get the price when it’s 1 trillion. Find that price on the chart, there’s how I obtained the date Sep, 2018. I also confirmed this date with article: https://www.cnbc.com/2018/09/04/amazon-hits-1-trillion-in-ma…

Amazon market cap: :

Dec, 1997: ~2.5 B (Stock price $5)
Sep, 2018: ~1 trillion. (Stock price $2000)

Stock price increase:400 times

Time frame: 21 years

1.?^21 = 400, to solve for ?, do reverse experiential: 400^(1/21) - 100% = 33% annualized return.

33% annualized return is decent return but not the best. Many concentrated portfolio here can generate 50% to 100% per year depending on new opportunities! And I do believe US will keep pumping out excellent new IPO every year. This is a reason I don’t invest in Mega caps with close to 1 trillion dollar cap!

You know how tough it is to reach 1 trillions for ZM in same time frame as Amazon?

ZM started market cap: ~20B.
Goal: Reach 1 trillion
Question: how long?

For ZM to reach $ 1 trillion means 50 times increase. ! Using amazon’s average growth rate of 33%, it’ll take ZM about 14 years! 1.33 ^ ? = 50. Solve for ?. I just use use a simple calculator. Using formula to solve for the ? exponent is more complicated so I just try different numbers for ? until I get close to 50. In this case, ? is 14 years.

The problem is ZM stock already went up 6 times in the first year.There are 13 years left. So remaining growth to reach 1 trillion is 50 times divided by 6 = 8.3 times increase for a duration of remaining 13 years. 1.?^13 = 8.3, solve for ?. 8.3 times increase over 12 years is 8.3^(1/12) -100% = 17.7% return per year for the next 13 years! See, if company grew too ahead, later growth will be slower! Remember, this is assuming ZM is as good as AMAZON and grow to 1 trillion in the same speed and same time frame. 17.7% per year return is horrible! Amazon is a monster. Jeff Bezo is brutal. Why do you think ZM can grow as fast as Amazon to reach 1 trillion in the same time without a diverse product offering? You know AMAZON sell everything now with a logo of A to Z to represent its business model vs ZM’s video and phone?

My conclusion it’s extremely hard for ZM to reach one trillion dollar in the same time frame as Amazon. ZM’s best case is to reach the status of Adobe and Salesforce and becomes a mid cap company IMHO. Therefore ZM’s future annualized increase in share price per year will be less than 17.7% for the next couple years. Those new investors buying ZM now will be sitting in dead money for a long time. This is how a look at investments with a big picture not speculating what will happen.

37 Likes

If you don’t see what’s disappointing about going from 102% growth to 17% growth in a single quarter, I simply don’t know what to say to you.

Sequential % Revenue Increase

                                                                  
FY 2020          15     20      14    13             
FY 2021          74    102      17

No offense, but cherry picking what are arguably outlier values (your own data shows that), and casting shadows on what has proven to be a sprightly, agile company, is premature.

IF COVID declines, and its threat nullified (something I find doubtful) business travel won’t seriously displace ZM. Conferencing is efficient and simple. Wasting time in airports and hotels for a meeting was never a choice, as video conferencing was limited in the past. No longer is that true.

🆁🅶🅱
post tenebras lux
For not in my bow do I trust, nor can my sword save me.

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I find these posts to be very helpful and appreciate having my perceptions challenged.

Also like to remind myself that even if Saul reduced his position to 5%, that is likely the size of my entire portfolio.
Reducing one’s conviction and allocation is different than if he said, “They’re done. I’m out.”
When he completely sells out, I will take that very seriously.

Ronjob commented with a heading Perception vs Reality.
That Microsoft uses their own in house product of Teams is not particularly surprising.
Am sure they also use Excel and Word and not Apple’s “Numbers” or “Pages.”

I do agree with Ronjob that Zoom’s future success will be dependent on their ability to expand the enterprise market.
Currently the market’s sentiment seems to be that Zoom will struggle in growing that segment.
Stock prices are absolutely dependent on perception.
Zoom’s share price is going down because so many share that sentiment.

A wise man posted this in a previous thread.
I stumbled on an interesting and astounding statistic which you might miss. Zoom’s over $100,000 customers were 1289 this quarter, and were 988 last quarter sequentially. That means that they increased their number of big customers by 30.4% SEQUENTIALLY!!! Read that again! It really astounded me. And this is a trailing twelve months figure, not an annual recurring revenue figure, so it’s not even counting many new $30,000 or $40,000 per quarter customers, because they don’t have $100,000 yet looking backwards. Interesting…

Personally I believe Zoom will succeed and have many successes within the Global 2000 in the next conference call.
We shall see if this is correct and the current Perception changes.

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While one could say ZM’s growth is priced in, it’s not being valued as if it were growing 300%. When it was at $550+ it was being valued more similarly to companies growing 90-100%, and now it’s more like companies growing 70% or so (I am thinking 40x annualized revenue). Its great rise this year was not because of growth rate but simply reflecting actual growth. Moving forward, if it grows at 15% sequentially (75% annual growth) then it’s not much different from CRWD or DDOG except that it makes a lot more revenue.

If they actually slow to 5-10% sequential growth then they should probably be valued much less. Based on their 3rd quarter, their sequential growth is essentially back to where the pandemic started but with a much higher revenue base.

Maybe it’s no longer worthy of a massively outsized position, depending on whether you think Zoom is just a pandemic driven tool that will fall back into the pack or if Zoom is revolutionizing business communications.

Personally, I’ll be most interested in their sequential growth next quarter.

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At this point all of this information and the different reductions in a previously maximum conviction company has me confused.

True, Zoom is currently my worst investment ever, since I started very “late”, averaging down from a much higher cost basis and am now in the red.

But from all the different information sources that I use I still feel like I should just stay the course. Nevertheless, I still got bloody worried and reduced the position size (at a loss) down to a “large” one (for my portfolio).

I started investing in early May, with a variety of approaches I tried over this very short time period.

I realized that my YTD performance is now worse than simply holding the S&P 500 from March lows. And much, much worse than holding e.g. ARK ETFs. While my portfolio is filled with most of the growth names discussed. With this style of investing, timing matters. Ninja-like AH moves that require lots of experience matter. It is not possible to “just follow” whatever people do here, I realize that. And it is not for me. It is very toxic trying to compare to other people’s returns, especially since I’m so new to everything.

I’m overwhelmed with this Zoom situation and can’t decide the best course of action, so inaction it shall be. I Foolishly keep 20 positions (including some ETFs) in my portfolio, most of which are still doing great.
I still believe that Zoom will continue to stay relevant and grow revenue at a brisk pace.

long Zoom (still 6.5% after trimming from 9% at a loss).

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At this point all of this information and the different reductions in a previously maximum conviction company has me confused.

True, Zoom is currently my worst investment ever, since I started very “late”, averaging down from a much higher cost basis and am now in the red.

RevTK, you are anchoring with Zoom. The day you started buying ZM is irrelevant to Zoom’s future. What counts is the future. If you can get over the anchoring, not easy by any means, you’ll be in a better position to decide what to do with your portfolio.

Denny Schlesinger

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Hi RevTK,
Mistakes happen. We are not saint and all make mistakes once a while. If you make one mistake and give up, how can you become better? As I child, how many times you fell down the bicycle before you learned to ride it? (Without the supporting wheels on the side). If you fall once, and give up, you’ll never learn to ride a bicycle. Same with investing in growth stocks.

Even I still make mistakes after investing for 14 years. Sometimes, I even repeat the same mistake more than once. But I try my best not to repeat them.

Recently, I bought into PLTR at $32. Watching it go up 20% a day, fear of missing out and i want to ride the train. This is not growth stock investing is about! We invest in growth stocks based on both fundamentals and share price not just on share price alone. Not long after, I realized the emotion got the better of me. The rational me think PLTR is a 40% grower and doubling, tripling in the stock price in one month just doesn’t make sense. it’s all based on HOPE and HYPE. Even it’s a tiny position of 2.5%, I sold out at a loss and moved on. just put my attention back to good companies.

Another example is BIGC. I didn’t buy into it. I’ll use it as example don’t just follow stock price alone. BIGC is a 40% to 50% grower. 18 to 19 YoY revenue growth rate is just ~20%. Its share price doubled in matter of one week. It’s insanity. And the stock price crashed down shortly after.

SNOW is very popular. It’s a 100% grower. The stock price went up 30% in 1 month. It’s perfectly normal. 30% vs 100% is a small number so I gradually built a full position over one month.

ZM was a 100% grower. It grew 500% this year alone. So you need to notice the unusual things and question them.

.

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Take a moment to read the entirety of the Tweet linked below. Consider the evaluation of YoY growth as well as sequential quarterly growth as depicted in both the bar chart and scatter plot graphs embedded in the Tweet and the story they tell about many of the companies discussed on this board. This thread has focused on Zoom but the concepts and metrics discussed speak to all of the WFH fliers discussed here.

Unless I interpret this information incorrectly, which is entirely possible, it appears that Zoom continues to win and lead our cadre of companies.

I am truly interested in responses.

Harley

https://twitter.com/jaminball/status/1337174904861458435?s=2…

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I am truly interested in responses.

Harley

https://twitter.com/jaminball/status/1337174904861458435/pho…

Above I said that 17% quarterly is 87% annually and the twitter chart shows that Zoom has the largest quarterly percentage increase. Fool DCCD says that Zoom has a good chance of becoming a platform company. In a sense it already is, lots of online healthcare services are based on Zoom.

https://discussion.fool.com/zoom-why-the-free-users-are-big-asse…

While Y/Y comparisons will be difficult for the next few quarters I believe Zoom’s covid-19 popularity is still in force although we won’t see a new 200 fold Q/Q increase in users. I’m watching Zoom carefully but neither adding nor panicking until further notice.

Denny Schlesinger

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I just want to add one small piece of information concerning large corporations’ penetration for Zoom. My husband recently had a job interview with Oracle, and it was conducted through Zoom. I guess large corporations still need Zoom to connect ppl outside their companies whatever they use inside.

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Mike wrote:

Okay, Zoom growth is going to slow, but let’s not get carried away. Assuming we all go back to the office, do we all go back to the same office? Not for me, and I suspect not for many. We have offices all over the country and the world.

Other than people walking into my office, I had very few in person meetings. Similarly, my firm cut down on business travel well before covid. I used to have telephone conferences all day. Those calls are now mainly Zoom calls and will continue to be Zoom calls now. How about calls with people outside your firms? I think the vast majority of those calls will also continue to be Zoom calls. If 20% more of the workforce works from home on a rotating basis going forward (accelerated shift as a result of covid), you will need to do Zoom calls with the group that includes them. I don’t think the cut back will be nearly as big a people think. People will continue to use Zoom.

This is certainly my experience. I work for a large organization (2,000+ users) which had Zoom licenses for about half of employees pre-pandemic and almost all employees from March on. Probably by 2022, work will return to close to normal in terms of a resumption of travel and in-office meetings. But this won’t hurt Zoom at all, because some things have changed that will never change back.

Pre-pandemic, even though we all had access to Zoom, conference calls were all by dial-in. They aren’t going back. Pre-pandemic, when we wanted to talk to someone directly, we called them, either on their office phone or their cell phone. And we were all still mostly communicating by cell through June or July, even though we could have been Zooming. But now, everyone just Zooms each other for one-on-one communication. That isn’t changing when we get back in the office. In fact, we are discontinuing our Verizon phone service and switching to Zoom Phone, effective January. Many employees will not have physical phones at all when we return to the office; everything will be done by Zoom Phone. For us, this is Zoom gaining revenue that would have gone not just to Verizon, but also to Cisco, which provides (1) our current voice-over-i.p. handsets and speaker phones, and (2) Jabber, our “soft-phone” solution. Other organizations in our space will follow.

I note also that Zoom’s chat function is superior to Teams and will likely also take share from Slack. The key to Zoom’s success, on an enterprise basis, is that the product is better. That is why people are using it even though everyone has Teams also.

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Hi Mnadel,

I note also that Zoom’s chat function is superior to Teams and will likely also take share from Slack. The key to Zoom’s success, on an enterprise basis, is that the product is better. That is why people are using it even though everyone has Teams also.

Do you think Zoom is taking market share from Twilio also? Does your company use Twilio at all?

Thank you,
Andy

1 Like

Twilio is a bit of a different beast - it is a play on enterprise communications. I do think the competition form Teams is fierce. All of the Wall St banks I am working with are officially moving from Zoom to Teams - it integrates better with enterprise infrastructure and is built for security. Even where Zoom is being used for video chat, we aren’t allowed to use it for screen sharing, due to security concerns. I think Microsoft is making a fierce move in this space. Of course all this is really not as relevant as Saul’s comment on going from 107-17% quarterly growth, and how for the next year annual growth won’t be relevant - that is the real answer. The price exploded because use and revenue exploded. The multiple partly reflects that expectation. Coming down to 87%growth annually vs quarterly is going to affect the earning multiple, and even if you love the company, it might make sense to get out until the market has readjusted expectations.

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