Q3 thoughts - Zoom, Crwd and others

Whenever an earnings report comes out, I always make sure that I go straight to the investor relations page to read it, without reading anyone else’s opinion first. This is because I don’t want anyone else’s interpretation to cloud my judgement. Before the release, I try to develop expectations and identify key things to look out for.

I haven’t posted on the board in a little while, but here’s some of my thoughts on the Q3 earnings of some of my companies; I’ll try to avoid repeating any points already made.

Zoom Q3 earnings

On the day the vaccine news was announced I wrote: “my concern now is that this upside potential (Q3 earnings beat) won’t be realised, but more than offset by this sentiment shift”.https://discussion.fool.com/this-is-great-news-for-the-world-and…

I believe that as Zoom shareholders, a company that has become the figurehead ‘Covid stock’, we need to have higher expectations for its continuing (out)performance than for other companies. The reality is that anyone putting fresh money into Zoom at the moment is doing so with a vaccine on the imminent horizon and against market sentiment.

Zoom’s Q3 was a mixed bag for me. I had expected >$800m revenue handily, so $777m felt on the low side to me and the immediate sell-off was unsurprising. I had figured that +17% sequential growth (+87% annualised) represented a cap on Zoom’s growth going forwards.

However, I was encouraged by aspects of what I heard on the Q3 earnings call. At work, monthly I present a ‘mini’ Operational Review (OR) or at least the financial element to it to MD level and quarterly an OR to divisional CFO/CEO level. What management really want to know is what the underlying picture is. In relation to investing, it seems that earnings calls often offer the best insight into the underlying picture.

Zoom’s growth in 2021 really seems to come down to: 1. gaining market share of the Global 2000 (Zoom suggested only 12% penetration into this Enterprise market during Zoomtopia https://discussion.fool.com/zoomtopia-king-of-the-castle-3464170…) 2. Zoom Phone 3. the level of churn post pandemic (creating stickiness for the 38% of revenue from employees <10) 4. monetising existing customers and 5. international expansion

Rather than go into all those points, which have been covered already mostly, I will talk about a couple points that jumped out to me. Firstly, I liked what I heard with regard to Zoom Phone on the earnings call.

Zoom Phone

We learned four important things about Zoom Phone:

  • Zoom had their biggest deal to date
  • It was Zoom’s fastest growing product (albeit off a smaller base)
  • Use case of how Peloton started with meetings & were then upsold Phone
  • Zoom Phone will be a meaningful driver for growth next year

I know some people wanted more information on Phone (who wouldn’t!). But remember that last quarter was the first time we got any information on Phone at all. We got a lot more information in this earnings call than we had before. I’ve also seen people interpret that because they’re not disclosing the absolute contribution, that means Phone isn’t doing well. I don’t know if that’s a fair assumption to make.

There could be many reasons why Zoom doesn’t disclose this information, not in the least competitive reasons. Does Microsoft not disclosing its Teams contribution mean that it it’s not performing well? In fact maybe we could make the opposite interpretation, that Zoom doesn’t want to give insight into the Phone opportunity in its very early stages before rolling out in force or risk alerting competitors. Who knows. The most important thing for me on Phone was the tone of the CFO:

"We think we’re very well situated from a competitive feature and functionality perspective. And as you said, we announced last quarter that we’re in 44 markets from a native Zoom Phone deployment perspective. So really feel great about the progress we’ve made around that and are excited about the continued progress that we’re seeing with Zoom Phone. And then in terms of key growth drivers, absolutely, Zoom Phone is one of the key drivers for next year.

It was absolutely the fastest-growing product in Q3, so excited to see that momentum. And if you think about the significant base of Zoom Meetings customers that we’ve acquired in Q1, Q2 and Q3, they are there to continue to support our strategy of selling into our installed base, and we absolutely expect that to be a key driver for next year."

Overall that sounds pretty positive to me.

Zoom Enterprise & R&D

So how can Zoom capture more of the Global 2000 than its current 12% market share? Well for a start recent end-to-end encryption and Gartner accreditation should help convince some companies who have previously held off Zoom due to security concerns.

Keep in mind that the 30% sequential increase in Enterprise customers in Q3 (accelerative from +28% in Q2) includes customers previously signed in Q1&Q2 reaching the $100k spend threshold, as well as the fact that major Enterprise deals generally have a longer sales cycle (so some backlog from Q2 flowing through into Q3 numbers).

I had two main concerns with Zoom pre-earnings call, both stemming from Yuan comments. One was a comment Yuan made during Zoomtopia that he doesn’t see Microsoft as a competitor but that companies would have both Teams and Zoom in order to have a ‘failover option’ and acknowledging that both tools offered different functionality (eg Teams for files and sharing). While I can see having a failover option being true for some Enterprises, perhaps it doesn’t speak volumes for your competitive edge if you’re announcing that as your go-to market strategy. We use Teams at work and its functionality and file storing etc has improved a lot since the start of the pandemic, and perhaps that’s what Enterprise customers really want. Has Zoom’s? It’s not too late to bridge this gap, in my (non-techie) opinion.

And this brings me to my second concern. It was a comment Yuan made saying he now spends ‘all his time’ on security. Maybe he was just saying that as a figure of speech, due to all the security critics. Yuan is a product guy. As a Zoom investor, I don’t want him to lose sight of that and focus on areas he doesn’t have expertise of. Instead I want him to focus on what got Zoom there in the first place - the product.

So when I heard in the earnings call that Zoom’s R&D (Research and Development) spend was only 3% of revenue in Q3, this raised some red flags for me. If Zoom is not investing quickly enough in hiring or in its product, how will it grow quickly at scale or maintain a competitive advantage.

Kelly Steckelberg addressed this by saying their long term goal for R&D would be 10% of revenue, that they’re expanding hiring internationally and product focus will be on OnZoom next year. While I was initially optimistic about OnZoom, I am increasingly questioning whether the platform is going to be a red herring for Zoom’s growth. I would appreciate any thoughts on the market opportunity here. Check out the beta for yourself: https://on.zoom.us/e/view

While Zoom is pivoting to B2C with OnZoom, a risk could be that it loses focus of its B2B purpose & its Meetings’ product development; I would like to see more evidence of that investment on both the product itself and on the financial statements. With the right product development, Zoom can make more inroads into the Enterprise market.

Monetisation of Existing Customers

Zoom has a total of 433,700 paying customers. That’s a lot. This time last year it had 74,100 (+485% YoY!!) The feeling I got from the Q3 earnings call in particular, was that Zoom’s strategy in the last couple of quarters has been to onboard as many customers as they can as quickly as possible and to worry about properly monetising them later.

I found this exchange particularly interesting:

Kelly Steckelberg – Chief Financial Officer
“So in terms of the approach, why we have active host versus named host is because it allows customers that aren’t sure exactly what their usage is going to be to come in and buy Zoom at a level that feels comfortable to them and then grow into that. So it’s a very effective mechanism for maybe somebody that’s newly adopting video communications or expanding and extending it to a part of their organization that may not have used it before. And it’s a great way for them to have the opportunity to assess what that level of usage is going to be.”

Analyst
“That’s helpful. And as far as the customers that are on the active post pricing model, how long is the lag? Or how should we think about the relationship between revenue and usage? Is it a one-month lag between the monetization versus usage? Is it a quarter? Is it a year? How should we think about that in general?”

Kelly Steckelberg – Chief Financial Officer
"Yeah. So the active host model is most prevalent in our upmarket customers. And the typical structure, of course – again, we’re focused on delivering happiness to our customers so these are all things that are negotiable. The typical structure of a deal would be they would have access to a certain – a set number of licenses.
They would pay for some fraction of that for the first year. And then 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."

Analyst
So should we interpret that as meaning customers that have not hit that one-year anniversary, those maybe in Q1 or Q2 that have expanded significantly in the last year, we should still see improved monetization of those in Q2, Q3 next year maybe?

Kelly Steckelberg – Chief Financial Officer
There’s absolutely the potential if that – in that scenario, that yes, there’s a step-up for those customers if they’ve expanded through where we started them in their minimum commitments at the beginning of their contract, yes.

In other words, Zoom can expect a level of revenue growth next year simply through monetisation of this customer segment, irrespective of cross-sell or further monetisation such as of its fastest growing education vertical.

I am a strong believer that many of the trends realised during this pandemic will stick and help shape the future post-pandemic, which I find useful to remind myself of with the recent market sentiment shift:

"There is something that often seems to be overlooked with Zoom, which is perhaps the most important factor of all for its long term thesis. This is a paradigm shift…A shift in how our work places and work culture are redefined, an underlying demand for remote work finally arriving to a worldwide audience and suddenly validated by technology, how learning, law and health are adapted, how housing, social activities and fitness are developed, how fashion, events and sports evolve - in a nutshell how people live. There have been significant periods of technological change over the past 100 years or so, perhaps this is one of them. Zoom is in pole position to benefit from this shift and, importantly - to help define it."
From <https://discussion.fool.com/snowflake-vs-zoom-a-comparison-34623…

I have not changed my mind about these trends or who might benefit from them, but the question has really become ‘how much is enough’ for Zoom’s growth next year. Taking a pragmatic approach I reduced my outsized Zoom position slightly on the vaccine news and a bit more in the last couple of weeks since earnings, as I am increasingly aware that market sentiment may dictate the answer to this question over the next 6 months more than the company itself. It is still my third largest position, and I intend to keep it that way for the time being.

Crowdstrike

Crowdstrike is now my top position. I had intended to write a review, but have written too much about Zoom already.

TMFCheesehead had a great post on Crowdstrike’s cross-selling of modules:
https://discussion.fool.com/two-most-important-nuggets-from-crwd…

Crowdstrike have 17 modules and are releasing new modules next year, so it’s great to have some more insight into the efficacy of this cross-selling and the long runway ahead.

The language from the call was overwhelmingly positive. If I could pick out one comment (from the CFO):

"And my comment on that really is it’s still early days for cloud. I think we have a huge, huge runway ahead of us, and we think we’re ahead of the curve and we think we’re ahead of everybody else in what we can offer. But I still think it’s still early days, and it’s one of those areas where we just see a tremendous amount of opportunity.

Roku

I have initiated a position in Roku since its Q3 earnings results.
Muji wrote an excellent recap here: https://discussion.fool.com/roku-q220-recap-34676698.aspx

One thing that immediately jumped out at me was the ARPU (Average Revenue Per User):

Q319: $22.58
Q419: $23.14
Q120: $24.35
Q220: $24.92
Q320: $27.00 (!!)

Spot the difference?

Roku CEO: “…even though we have a nice robust ad business, the vast majority of advertising spend is still in linear television, it’s not – it’s still not in streaming. And one of the interesting things in the quarter was the fact that advertisers are increasingly seeing streaming is something they need to start allocating a bigger portion of their budgets toward.”

The Q3 ARPU seems to represent an inflection point for Roku’s growth as this shift to digital advertising develops.

Datadog

I summed up my thoughts on Q3 earnings on this thread, and am keen to see how Q4 plays out.
https://discussion.fool.com/datadog-redefining-expectations-3466…

E-Commerce

I will be watching Q4 results closely, as I believe these will be more meaningful than Q3 results for e-commerce names. E-commerce has potential to be one of the biggest beneficiaries of Q4 and beyond, and in recent weeks I have shifted about 20% of my portfolio into e-commerce names. Before my current role I spent a year working in finance with a focus on supply chain for a major retailer, and saw first hand the shift to online retail/e-commerce. Each year there is an increasing seasonal shift to Q4 holiday sales, Black Friday, Cyber Monday etc. These sales ‘days’ are no longer that, but weeks or more. Organisations ramp their entire infrastructure for this peak period, panic hiring agency, sales promotions, competitive pricing and price wars over search optimisation. Only those with the best in breed e-commerce or experience elements will survive it - (it’s why I decided to leave my old company).

Seasonality: Etsy and Shop sequential revenue growth Q3 & Q4:

Etsy

Q319: +9%
**Q419: +36%**
Q320: +5%
Q420: ? 

Shopify:

Q319: +8%
**Q419: +29%**
Q320: +8%
Q420: ?

At a high level, if you were to consider just one fact that in previous years about half of holiday season shopping occurred in store. And then consider where people might shop even more this holiday season (online), and then once someone starts shopping online how their shopping habits might change going forward. These trends are here for the long term.

This blog of updates has some interesting statistics about some of the trends between coronavirus and e-commerce, including a reference that the pandemic has accelerated e-commerce up to 5 years:
https://www.roirevolution.com/blog/2020/12/coronavirus-and-e…

I haven’t set any 2021 New Year resolutions yet, but one of my 2020 resolutions was helped thanks to this board. So thanks and happy holidays.


(Someone had emailed me a while back when I mentioned that I was an inexperienced investor and suggested that I should say what experience I do have. Well I’m a relatively late starter to my career (I’m 30 now), I studied ancient history, had a few years out either side of university travelling, doing conservation & voluntary work and writing. Then I got my accounting qualifications (at a company I’ve seen pop up on this board in the last couple weeks in relation to Crowdstrike), and over the past year in my new role I have financial responsibility & ownership over one of the youngest and highest growth areas of the world’s oldest telecoms company: IoT (Enterprise). My learning curve this year has been steep, thanks again to this board for all the investing knowledge.)

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Tom,

Your post from last night (specifically the detailed thoughts on zoom) might be the best post I’ve ever seen on Saul’s board. Certainly this year. I love that you focused on the Q3 report but also reference zoomtopia, and I agree that the monetization of customer already signed could be an on-going key driver. Customers added have dropped from almost 200,000 in Q1 (likely the most incredible scaling feat of all time) to just over 100,000 in Q2 to just under 65,000 in Q3…but it’s extremely hard to see adding 65,000 customer companies in 90 days as anything but euphoric.

If they can keep anywhere near that pace, the expand might surprise us. I was previously down on this possibility, as I didn’t see a ton of room for their expand to continue at its previous pace (or anything close). I was thinking that companies had already likely signed up all their users during the pandemic. Kelly’s quotes you highlight have made me rethink this.

Thanks for the thinking, Fool.

Bear

PS - I wonder if the $110m+ of revenue added sequentially in Q3 might turn out to be a low mark rather than just the start of the slow down. I’m guessing the focus on monetization hasn’t really begun, as they were just busy getting 65,000 new companies in the door.

PPS - sorry about my US-spelling of “monetization.”

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Thanks Bear :slight_smile: If I can expand a little on the customers…

Without an edit feature and to make it clear Zoom’s 433,700 customers in Q3 are those > 10 employees (62% of revenue including Enterprise). This is a lot, and represents the biggest opportunity for monetisation (UK spelling!).

Let’s compare their customer metrics (QoQ % - Quarter on Quarter growth):

Total Customers >10 employees


Q419: 81,900 (+12%)
Q120: 265,400 (+224%) (!!)
Q220: 370,200 (+39%)
Q320: 433,700 (+17%)

Enterprise Customers (>$100k spend)


Q419: 641 (+17%)
Q120: 769 (+20%) 
Q220: 988 (+28%)
Q320: 1289 (+30%)

Notice the reversion to the mean of total customers from the pandemic spike in Q1&Q2 while Enterprise customers continue to accelerate. This is in part because of the conversion of existing customers into the Enterprise bracket, and the ‘total customers’ represent pipeline for Enterprise. We might expect the acceleration of Enterprise customers to remain at elevated levels for a while longer, while the pace of total customer wins decelerates.

What does this mean in terms of revenue?

Total revenue (absolute $, QoQ%)


Q419: $188m (+13%)
Q120: $328m (+74%)  
Q220: $664m (+102%)
Q320: $777m (+17%)

Mix of customers <10 employees (as a % of revenue), absolute $, QoQ%


Q120: 30% ($98m)  
Q220: 36% ($238m) (+143%)
Q320: 38% ($295m) (+24%)

Zoom do not offer the same level of insight into Enterprise customers but looking through their earnings calls we can see that 1289 Enterprise customers made up only 18% of revenue in Q320 and 23% of revenue in Q120 (from $75m to $140m, +85%). Let’s assume Q220 was 20%. In Q3 your average Enterprise customer is therefore contributing $108k of revenue, or $435k annually.

Therefore, if we assume the difference between total revenue, customers <10 employees and Enterprise customers, is the total customers >10 employees:

Total customers > 10 employees (excl. Enterprise) (As a % of revenue, absolute $, QoQ%):


Q120: 47% ($154)m 
Q220: 44% ($292m) (+90%)
Q320: 44% ($342m) (+17%)

At a high level, it is this segment that might represent the best monetisation opportunity for Zoom & conversion into Enterprise customers. Remember there are 430,000 customers in this segment, contributing $342m revenue in Q3. That’s about $800 revenue contribution per customer. Each customer has at least 10 employees. Therefore at an absolute maximum Zoom is generating $80 per customer license in Q3, or $320 annualised.

But let’s consider that this SMB (Small-Medium Businesses) segment typically ranges from 10 up to 250 employees. The standard price plans on Zoom’s website available to these customers ranges from $216/year to $325/year per employee (using fx conversion if you see differently). Even if we were to go towards the lower end of the range and say this segment has an average of 20 employees, that only represents $160 per employee per year. Therefore, at the very minimum, it seems that Zoom has an opportunity to further monetise this existing customer segment on its current price plans alone & upscaling existing licenses, as hinted at by the CFO in the call. There are more strings that Zoom can pull down the line, with almost half a million SMB’s on the platform.

(If anyone has any market data of average size of businesses >10 employees in the US to support this that would be great).

Broken down like this it’s clear to see how the acceleration of revenue growth through the pandemic was largely down to the mix shift to customers <10 employees.

Going forwards, we would expect the mix shift to revert back, with revenue contribution from this segment stabilising/slowing while Enterprise customers accelerates from conversion of the >10 employee segment (and market penetration of the Global 2000). Clearly this might present a challenge for Zoom accelerating its total revenue contribution, with Enterprise growing from a small base of 18% of revenue while <10 employees decelerates from 38% of revenue. Again, the question for Zoom - how much growth is enough? Also remember softer YoY comparatives in Q1&Q2 FY21. To offset churn in the <10 employee segment Zoom are trying to convert customers to annual plans.

If people would find it helpful maybe I could expand on some of the points 1-5 on my original post. Now I’m not an expert and could be wrong on many levels, but this is just how I am looking at it all.

R&D

Also, right on time, Zoom have today announced the opening of a new R&D center in Singapore (to go along with previous data centers opened in India, Singapore and the US in quarter).
https://investors.zoom.us/news-releases/news-release-details…

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I think the key question for Zoom going forward is how they can monetize new/business users, and what the ramp curve will be. No-one, not even Zoom, probably can answer that question, but let me tell you my company’s experience: We are just in the process of rolling out Zoom (we used to use Lifesize for video conferencing, but also a lot of Google Meet since we’re on WFH).

It turns out that Zoom has quite an intricate system of account types, account roles, and user types. And surprise, as you start using it more and more, you discover that just being a basic business user quite often doesn’t cut it. For useful features like larger audiences, longer meetings, adding rooms etc you need more expensive roles/types. So now we are already in implementation phase, and as always, sooner or later more employees than initially granted will require the more expensive capabilities. I imagine most companies will find themselves in the same position over time. I don’t know the exact pricing of the different tiers but I’m certain they represent a significant revenue opportunity.

This could go both ways though - whether it’s Google Meet (who constantly seems to add features) or Microsoft Teams: a lot of companies have one or both of these already installed as part of their overall G or MS suite. So as they catch up technologically with Zoom (as I imagine they invariably will), it may well turn out that employees get annoyed with lack of [costly] Zoom features available to them and migrate back to these other tools.

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Zoom pricing is far from mysterious or complex.

https://zoom.us/pricing

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"Zoom pricing is far from mysterious or complex.
https://zoom.us/pricing"

I thought luciuse’s post was insightful.

Pricing, monetisation and go-to-market strategy

Let’s take a step back and consider that Zoom had in the >10 employee segment 81,900 customers in Q419 and 433,700 customers at the end of Q320. This is an increase of +430% across 3 quarters.

We don’t have the exact information for Q419, but let’s assume for this example that in this quarter the revenue contribution from customers > 10 employees was 50% (vs 25% <10 employees, 25% Enterprise):
In Q419 81,900 customers >10 employees generated $94m of revenue. In Q320 433,700 customers contributed $342m. Therefore in a period the customers increased +430%, revenue contribution from this segment was ‘only’ up +264%.

So what gives? For a start, there is a bit of lag simply because they are reporting customers at the end of a quarter but the revenue throughout. So 20,000 customers might’ve been added in October, which we only see one month’s worth of in revenue in Q3. You can see this exaggerated in the dynamic between total customers & revenue in Q1-Q2 in my second post. However, even taking away 30,000 customers for half of Q3 from Zoom’s total, that’s an increase of +393% in customer count vs +264% revenue contribution.

Next, throughout the pandemic Zoom offered free service to 125,000 schools. I am not sure which segment schools might be categorised into (preferably the <10 employee segment). It’d seem like a good question to ask them in the Q&A. Steckelberg (CFO) gave us some insight into how these might be being monetised in the call:
“So as I said in the prepared remarks, a large percentage of the growth in the usage was from education but both free and paid. And paid is certainly an – it’s an elevated percentage of our total usage. Education continues to be one of our strong verticals. It was the second fastest-growing vertical again in Q3, so really excited about the progress we continue to make there as well.”

What else might driving the ‘dilution’ of revenue contribution from customers >10 employees? Another factor is sales promotions. Clicking on the pricing link to Zoom’s website you can immediately see the 15-20% discount offer to sign up. I’ve noticed a sales promotion since the beginning of the pandemic whenever I’ve looked.

So monetisation of the free element of schools is one element that Zoom has, but how else can Zoom monetise its existing customers?

I find it helpful to think of revenue as ‘price x volume’. As rate of volume (new customers/subscriptions) slows as it undoubtedly will post pandemic, the rate of revenue will decrease at the same rate if the price were to stay fixed. So in this context ‘monetisation’ = price.

Monetisation and Pricing of Zoom’s customers

1. Price plans. For >10 employee segment, customers really have two standard options for Meetings until they reach the Enterprise bundle (100+ licenses). This is a $200 option or a $300 option for the add on features such as Phone and Chat (I had converted using fx rate on UK plan not noticing I could just filter to USD on Zoom plans, hence the difference to $216-$325 in my other post. US are getting a good deal vs UK!).

a. Upgrading customers from the $200 option (Business plan) to $300 option (United Business plan), with its added features & integration of Zoom Phone and Chat (some overlap with Phone opportunity here)

b. Increasing pricing. The more stickiness that Zoom can create with its platform and its features, the more the network or ‘viral’ effect, the greater its pricing power.

c. Add on plans. Currently offering Audio plans, Large meetings and Cloud storage add ons. Improve and expand on existing add-ons.

d. Improving features and functionality on existing plans to up-sell to premium option (eg Smart Gallery). CFO: “As we’ve seen the expansion in Zoom Phone, we’ve seen customers continue to ask for more features and functionality.”

2. Up-selling of its Webinar and Rooms features such as with Enterprise customer Rakuten, which has 1.4bn members globally, rolling out Rooms & Phone in quarter

3. Preparation for ‘post pandemic’. Steckelberg talked about how customers are putting in Zoom Rooms while offices are empty, and how Smart Gallery will help enable a hybrid work environment

4. Education. Currently $90 a license. Once committed to annual plans & fully embedded; pricing power.

5. Active host licenses. As the CFO indicated, active hosts largely relate to Zoom’s ‘upmarket’ customers (eg larger businesses & ‘Enterprise’ customers). This applies to customers with a minimum of 50 licenses: https://onlinezoomappdownload.com/discounted-license-for-com…. Conversion of those on an active host license to a standard business license represents a monetisation opportunity, as licenses are ‘trued up’. Drivers include the ‘viral’ effect of the platform across a company. The more active hosts the greater the upside.

6. Growth through channel partners, eg Lumen Technologies. Channel will open up new avenues for growth, and drive this viral effect. Integration of its services through these large telecoms partnerships as they shift to cloud represents monetisation opportunity (at least for Enterprise). CFO: "certainly, this is an area – it will be a driver – an area driving growth for next year”.

7. Government was the fastest growing vertical quarter on quarter in Q3. A pipeline of large government contracts can also help to accelerate monetisation.

N.B. The focus on conversion from monthly to annual plans primarily relates to <10 employee segment, to create stickiness of those customers. Monthly plans contribute +20% more revenue across Zoom’s plans.

While it’s impossible to break out exactly how much the monetisation opportunity each segment might drive growth next year, there will likely be at least some level of ‘price’ acceleration next year to offset vs the ‘volume’ deceleration of its biggest segment.

Go To Market

Really here’s what stood out to me about the Q3 earnings call, in terms of comments about Zoom’s go-to-market strategy in the pandemic, a story begins to form:

"We’re focused on delivering happiness to our customers so these are all things that are negotiable. The typical structure of a deal would be they would have access to a certain – a set number of licenses. They would pay for some fraction of that for the first year."

"I mean we really value our free customers, our free host, and we think they are very – they continue to be a very important part of this ecosystem."

"This is just the way that we’ve chosen to build our go-to-market, and that’s just sort of the trade-off when you compare us to other companies"

"We haven’t seen a significant change in our overall deal size. If you remember, LAND AND EXPAND IS STILL A VERY IMPORTANT PART OF OUR SALES STRATEGY. And we see customers doing that. We also see customers that are starting with, for example, Zoom Meetings and then add on – two of the customers we talked about today, Peloton and Rakuten, that added on Zoom Phone later. So not really a significant change in the overall deal size, especially at the start."

“We’ve also seen, even in the upmarket, people that are also expanding, continuing to buy more products, which makes them more integrated into the Zoom ecosystem and makes them more retentive.

'Make your customers happy and the rest will follow.’ (Crowdstrike CEO George Kurtz from his interview with Lewis Hamilton that I watched yesterday). https://www.crowdstrike.com/resources/videos/formula-for-suc….

This certainly seems to be Zoom’s strategy from culture to product to pricing.

All of this feeds into my interpretation of Zoom’s strategy of loading up its customers as quickly as possible and the effective monetisation of these new customers being a secondary consideration during the pandemic. At least to some level we would expect increased monetisation next year, and that’s why it’s one of my 5 key growth drivers for 2021.


Really an investment to some degree comes down to risk-reward. While I do think Zoom’s upside might be somewhat capped over the next 6 months or so due to market sentiment and the uncertain level of growth post pandemic (which no-one, even Zoom management I bet, truly knows), I also think at $400 its downside is also somewhat priced in now compared to some other over-extended names (I know many, mostly traders, who would disagree).

It comes down to what level of growth Zoom can expect next year. The market seems to think not much since the vaccine news. I’m looking out for ways in that it might exceed these expectations. For now, the risk-reward is such that I’m happy to keep my position as is and to look at the bigger picture.

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