Anticipating Zoom Q3 $$

Friends,

Monkey has a lot of bananas on the table regarding Zoom's upcoming earnings on 11/30 including some very short term post-earnings calls, which are off topic but in Monkey's Jungle reality.

Lots of humans have sold their shares (from a 588 high to today's 398 fetching price)
and Monkey thinks they are being super short-sighted because Vaccine 
does not equal that much less Zoom. 

Zoom guided to 685-690million in $$$. Wall street on average thinks it'll be 693. 

Monkey thinks it'll be even higher because:

1. August, September, October were the first months of the pandemic during which most Universities were online. 
2. WFH was still unfolding as a structural transition
3. Zoom brought out more tech gizmos and there must be some early adopters in there
4. Network effect: more Zoom users = more new Zoom users to talk to old ones. 
5. Flawless execution, PR-wise. 
6. Crickets from competition as far as Monkey can tell, but possibly mistaken here. 
7. New network aggregators like Upwork signed on with Zoom. 
8. Lots of offers to lock in a discounted annual rate that were probably taken advantage of, yes? 
9. ????

 **Therefore, Monkey is gonna throw a dart at the board and call Q3$$ coming in at $740million. Too high? Too low? What are the reasonable ranges we deem plausible? Discuss!**

Previous $$ numbers: 

| Quarter   | Revenue   | T6M     | T9M     | TTM     | 𝝳 (q-1)   | 𝝳 (YoY)   | 𝝳 (T6M)   | 𝝳 (T9M)   | 𝝳 (TTM)   |
|:----------|:----------|:--------|:--------|:--------|:----------|:----------|:----------|:----------|:----------|
| 2018Q1    | 60.07m    |         |         |         | NaN       | NaN       | NaN       | NaN       | NaN       |
| 2018Q2    | 74.53m    | 134.60m |         |         | 24.1%     | NaN       | NaN       | NaN       | NaN       |
| 2018Q3    | 90.12m    | 164.65m | 224.72m |         | 20.9%     | NaN       | NaN       | NaN       | NaN       |
| 2018Q4    | 105.80m   | 195.92m | 270.45m | 330.52m | 17.4%     | NaN       | 45.6%     | NaN       | NaN       |
| 2019Q1    | 121.99m   | 227.79m | 317.91m | 392.44m | 15.3%     | 103.1%    | 38.3%     | NaN       | NaN       |
| 2019Q2    | 145.83m   | 267.81m | 373.61m | 463.74m | 19.5%     | 95.7%     | 36.7%     | 66.3%     | NaN       |
| 2019Q3    | 166.59m   | 312.42m | 434.41m | 540.21m | 14.2%     | 84.9%     | 37.2%     | 60.6%     | NaN       |
| 2019Q4    | 188.25m   | 354.84m | 500.67m | 622.66m | 13.0%     | 77.9%     | 32.5%     | 57.5%     | 88.4%     |
| 2020Q1    | 328.17m   | 516.42m | 683.01m | 828.84m | 74.3%     | 169.0%    | 65.3%     | 82.8%     | 111.2%    |
| 2020Q2    | 663.52m   | 991.69m | 1.180b  | 1.347b  | 102.2%    | 355.0%    | 179.5%    | 171.6%    | 190.4%    |

Hugs,

Monkey (long ZM)
82 Likes

Thought I would fix this so it was at least slightly more readable…

Friends,

Monkey has a lot of bananas on the table regarding Zoom’s upcoming earnings on 11/30 including some very short term post-earnings calls, which are off topic but in Monkey’s Jungle reality.

Lots of humans have sold their shares (from a 588 high to today’s 398 fetching price)
and Monkey thinks they are being super short-sighted because Vaccine
does not equal that much less Zoom.

Zoom guided to 685-690million in $$$. Wall street on average thinks it’ll be 693.

Monkey thinks it’ll be even higher because:

  1. August, September, October were the first months of the pandemic during which most Universities were online.
  2. WFH was still unfolding as a structural transition
  3. Zoom brought out more tech gizmos and there must be some early adopters in there
  4. Network effect: more Zoom users = more new Zoom users to talk to old ones.
  5. Flawless execution, PR-wise.
  6. Crickets from competition as far as Monkey can tell, but possibly mistaken here.
  7. New network aggregators like Upwork signed on with Zoom.
  8. Lots of offers to lock in a discounted annual rate that were probably taken advantage of, yes?
  9. ???

Therefore, Monkey is gonna throw a dart at the board and call Q3$$ coming in at $740million. Too high? Too low? What are the reasonable ranges we deem plausible? Discuss!

Previous $$ numbers:


| Quarter | Revenue | T6M     | T9M     | TTM     | 𝝳 (q-1) | 𝝳 (YoY) | 𝝳 (T6M)| 𝝳 (T9M) | 𝝳 (TTM) |
|:--------|:--------|:--------|:--------|:--------|:--------|:--------|:-------|:--------|:--------|
| 2018Q1  | 60.07m  |         |         |         | NaN     | NaN     | NaN    | NaN     | NaN     |
| 2018Q2  | 74.53m  | 134.60m |         |         | 24.1%   | NaN     | NaN    | NaN     | NaN     |
| 2018Q3  | 90.12m  | 164.65m | 224.72m |         | 20.9%   | NaN     | NaN    | NaN     | NaN     |
| 2018Q4  | 105.80m | 195.92m | 270.45m | 330.52m | 17.4%   | NaN     | 45.6%  | NaN     | NaN     |
| 2019Q1  | 121.99m | 227.79m | 317.91m | 392.44m | 15.3%   | 103.1%  | 38.3%  | NaN     | NaN     |
| 2019Q2  | 145.83m | 267.81m | 373.61m | 463.74m | 19.5%   | 95.7%   | 36.7%  | 66.3%   | NaN     |
| 2019Q3  | 166.59m | 312.42m | 434.41m | 540.21m | 14.2%   | 84.9%   | 37.2%  | 60.6%   | NaN     |
| 2019Q4  | 188.25m | 354.84m | 500.67m | 622.66m | 13.0%   | 77.9%   | 32.5%  | 57.5%   | 88.4%   |
| 2020Q1  | 328.17m | 516.42m | 683.01m | 828.84m | 74.3%   | 169.0%  | 65.3%  | 82.8%   | 111.2%  |
| 2020Q2  | 663.52m | 991.69m | 1.180b  | 1.347b  | 102.2%  | 355.0%  | 179.5% | 171.6%  | 190.4%  |

Hugs,

Monkey (long ZM)

40 Likes

Lots of humans have sold their shares (from a 588 high to today’s 398 fetching price)
and Monkey thinks they are being super short-sighted because Vaccine
does not equal that much less Zoom.

I think this observation is spot on. The price drop is part of a broader excursion motivated by the idea that ZM will lose momentum because there will be less WFH. IMHO not so. ZM growth trajectory is established on a more solid thesis extensively discussed here.

I can’t resist commenting on your prognostication. $740m would replicate the growth in Q2 and represents a beat of 5-6%. Certainly within the realm of the possible. I don’t think the momentum of the 2nd quarter will slow down much in the 3rd for all the reasons you cite plus a further factor which I have previously suggested in several posts. That is that among those newly exposed to ZM in the past few months must be included a decision maker or two or more well placed to negotiate an unpredictable large ZM deal.

A couple of cases like this appeared recently in the news relative to other SaaS companies,. So I think there are some unmeasurable growth possibilities that add to your thesis, and therefore I endorse it.IMHO there is some chance (20%–???) that your guess will be exceeded.

cheers

arnie

7 Likes

My company just announced last week we will adopt Zoom as a back up to Google Meet. And we bought a trial account to test it out for our company-wide WFH holiday party. There are no competitors that can offer the same scalability as Zoom, our IT did an extensive reveiw. Google Meet can’t host 500 users concurrently. To do a meeting that big we need to use the Google Meet stream option and set up a separate meeting with all the speakers. It’s logistically challenging. WebEx has the same scale issues.

My guess? There are still tons of companies like us that are finding our existing tools still don’t meet our needs. Zoom appears to be the only option that works on a massive scale.

NOTE: They offered us a buyout of our existing contract with our streaming webinar video service Go To Webinar. We plan to switch in Q1 and adopt Zoom officially for webinars, keeping Google Meet for internal meetings.

Will Zoom beat on revenue? I think it’s possible.

30 Likes

Great post, Monkey. I can think of a couple more reasons why it will blow Wall Street’s lousy estimate right out of the water -

  1. Hints from the Q2 conference call. This has been discussed in the past, AThinkingFool had a great post on this thread (https://discussion.fool.com/zoom-q2-21-earnings-34606451.aspx?so…), see #71368. This question and answer sums it up well for me -

Shebly Seyrafi – FBN Securities – Analyst
“You’re guiding revenue to be up around 3% sequentially. But if I assume that your customer count is at least flattish Q to Q, your average customer count is going to be up around 16% Q to Q, which implies that your ARPU is implicitly guided to be down 13% Q to Q. And so, my question is, I’ve never seen a double-digit decline in your ARPU before. What would drive that?”

Kelly Steckelberg – Chief Financial Officer
“Well, as we’re sitting here right now, looking forward, I think it’s more around the uncertainty around churn and what’s going to happen with the overall economy. That’s really the uncertainty there, and why we’re guiding flat for Q3 to – Q3 and Q4 revenue will be flat, modestly up from Q2. And, you know, we’ve had a significant increase in our mass market customers, where there just remains limited visibility in terms of the long-term contribution for those customers. It’s more around the uncertainty in churn and what does that mean for the top line growth.”

Well, we know that COVID raged on during Zoom’s Q3 period so I would be shocked to see revenue come in flat QoQ.

  1. Zoom has a history of sandbagging.

Here is a breakdown of their previous quarterly guidance since the IPO. I believe all numbers are the at the high point of the guidance.

 

Q Guidance 	$130.0  $156.0  $176.0  $200.0  $500.0	$690.0 
YoY Change % 	74.5%	73.1%	66.4%	63.9%	242.9%	314.2%

$ Beat          $15.80  $10.60  $12.30  $128.20 $163.52 
Beat % 		12.2%	6.8%	7.0%	64.1%	32.7%

The 64% beat can be thrown out as an outlier since that guidance was given prior to COVID really arriving in the US, however their most recent beat is very telling. They guided for $500M in revenue for Q2 on June 2 which was months into the thick of COVID. They knew darn well at this point in time that their growth and usage was exploding globally. Yet, the guided for $500M in revenue and proceeded to beat this by $163M, or 33%. That is absolutely insane.

Your estimate of $740M in revenue suggest a beat of only 7%. I believe that is far too conservative given the points you made above, comments on the last CC, and their history of sandbagging, especially considering last quarter. I think a conservative estimate would be a beat of 10%, or revenue of $760M. I consider it very possible they beat their estimate by roughly 20% given how they performed last quarter. This would amount to Q3 revenue of $830M, which equates to nearly 400% YoY growth.

So, I think revenue will land somewhere in the ballpark of $740-830M, although it would not surprise me to see it come in above $830M whatsoever. If it does, I will be one happy man.

Cheers,
Rex

43 Likes

Hi Monkey

“1. August, September, October were the first months of the pandemic during which most Universities were online.”

The report will be about the July, August and September months, since the last earnings covered up to June.

I suppose that July and August are calmer months. At least in Europe everyone has a vacation at some point (I think that in America people are less likely to take all their vacations). But that’s the case for last year as well, so shouldn’t change the YoY beat, but maybe the QoQ beat.

This quarter will be good, no doubt. But I think next quarter will be the real whale one: October, November and December, with WFH in full swing, and also at the end of the year everyone trying to connect to loved ones.

We’ll see.

Sedi

10 Likes

You are incorrect about the fiscal calendar for Zoom.

https://www.sec.gov/ix?doc=/Archives/edgar/data/1585521/0001…

Monkey has it right.

6 Likes

I don’t think it is fair to say Zoom is sandbagging. I think they were being conservative with an unknowable situation. The difference is that sandbagging requires an intentional under-guide (much is known and the guidance is knowingly low), while being conservative is, at least in its intention, a reasonable guess while trying to reduce the risk of reporting below expectations. I do not fault Zoom for expecting churn to counter growth considering the unprecedented growth they have already experienced. They are caught in gale-force tail-wind and keep expecting to return to a more normal breeze. I don’t believe this is happening yet though. The pandemic is worse than it has ever been to date and even with positive vaccine news it will be 6-12 months before it matters for most people. I don’t mean to get too macro here because I DO think what Zoom has land-grabbed will be kept for the most part. I bring it up because I don’t see any micro OR macro reason things should change any time soon. They continue to perform on both sales and innovation.

19 Likes

For me - since we are really still in a working from all over the place mode, videoconferencing is still essential. If 100% were working from home before and now it’s 50% - you still need everyone to VC until it’s 100% back in the office and business travel is back to the max. Neither of which is happening and so VC is still a necessity.

What I’m more interested in the short term is to see what is happening with the short term free on boarding Zoom has been offering clients and industry verticals (e.g. education) and to what degree Zoom is able to start monetising with paid subscriptions - just as Shopify and etc had to offer free to use initial offer periods followed by monetisation.

In the medium to longer term then it is about:-

  1. what the new normal involves in terms of VC as usual
    and
  2. what new solutions Zoom can be embedded into to drive new business models and solutions.

Ant

14 Likes

Good points, Ant.

On the point about new solutions I’ve been thinking a bit about ZM’s role in telemedicine in the U.S. going forward post vaccine/Covid-19 emergency. Right now we are in a situation where privacy related restrictions as part of telemedicine have been relaxed considerably. Doctors are using all kinds of platforms including skype, facetime etc, products that traditionally have not been permitted. I’ve had consultations with doctors on several platforms since then…

https://www.hhs.gov/sites/default/files/telehealth-faqs-508…

Question 6 in the above link talks about when these restrictions might be put in place again and just says that HHS does not yet know and will make a decision at some point. Presumably at that stage, doctors and other healthcare practitioners that want to continue to practice telemedicine will need to do so with a compliant product like that offered by ZM or TDOC… Telemedicine certainly won’t just go away once all this is over.

So perhaps there is an additional gain to be made there even when the Covid-19 crisis lets up?

10 Likes

A bit of a niggle to my mind for the longer term (and to play Devil’s Advocate a bit), is Zoom security. After all the FUD has cleared a bit, it looks like Zoom security hasn’t been all that it could be to date.

https://arstechnica.com/tech-policy/2020/11/zoom-lied-to-use…

The education sector, who are big users of Zoom, don’t care too much about security, but other high value users will. Could this put a dampner on growth for high value accounts until Zoom gets on top of this?

Has anyone here with an IT/Security background taken a close look at Zoom security?

ijv

(Long ZM)

Has anyone here with an IT/Security background taken a close look at Zoom security?

Not an IT person, but my very large firm runs all of our Zoom calls through a dedicated website. I would think most large firms do/could do the same if they were worried about installing the Zoom app on users computers.

Mike

Telemedicine is one area - think about all the verticals that will forever change with Zoom - who wants to go ever go back to venue capacity limitations or voice only calls or expensive business travel when you can use Zoom phone/VC for:

Recruitment/interviewing
Call Centers
Education
Live entertainment
Training
Professional Advisory Services
Holiday season/celebration emails, cards, letters etc

Simple effective and affordable video can replace many parts of a lot of value chains across a lot of sectors.

Ant

9 Likes