Saul - I really enjoyed your “Zoom results - my thoughts” post, along with the ones for CRWD and SNOW. The observation about using YoY revenue comparison for Zoom, along with the note that nothing can grow 100% forever, is really great. The board seems to have gravitated towards companies growing revenue at 50% and up YoY, with less focus payed to those growing in the 20s and 30s. This is a really good benchmark for those with hyper-focused portfolios, myself included.
Recently however, as some our companies have begun to reach a point where 50,60,80%+ growth is not possible anymore , QoQ revenue growth seems to be gaining more traction as an investment factor. I’m curious what percentage you, and others, consider to be on par with 50%+ YoY growth? Perhaps there is no magic number and its better to look at many quarters of continual sequential gain?
I think the answer is that each company is different and that Covid was a special time. Zoom was a special case because of Covid. Its April and July quarters were so huge in acquiring customers and revenue that even staying flat sequentially leaves them with so much recurring pass-through revenue so much above a year ago that it’s silly in a way. So the question becomes what happens next year when they lap those two two quarters if they don’t have enough sequential growth. The headlines for next year’s July quarter may read “Zoom’s yoy growth is 60%, down from 355% a year ago!” That may have an effect on their stock price to put it mildly.
Datadog is a Covid special case in the other direction. They grew revenue much less than normal, for them, sequentially in their April to June quarter because of Covid. This means that their carry-through recurring subscription revenue base is lower, and closer to the year-before quarter than it would have been, and that their normal sequential growth looks like lower year-over-year growth until they lap that weak quarter. (Which is why they reported “only” 61% growth last quarter).
Then you had Okta, which just chugged along and where no adjustments are necessary. Revenue Growth sequentially the last five quarters in millions of dollars were 12.5, 14.0, 16.0, 17.0, 17.0, while yoy percentage growth was 45% 45% 46% 43% 42%.
The headlines for next year’s July quarter may read “Zoom’s yoy growth is 60%, down from 355% a year ago!”
It doesn’t seem out of the realm of possibility that the July 21 headlines might say “Zoom’s yoy growth is 0%, down from 355% a year ago”.
Where is the growth going to come from?
Sales of new offerings … zoom phone, etc. Until we see those sales materialize and reported, then you are investing in hope.
Stealing customers from the likes of WebEx, Bluejeans, etc. My hunch is this will and IS happening. The competitors are junk in comparison. I can’t quantify it tho.
Capturing net new ‘Covid/WFH’ customers. My simple question is this… how many people are affected by Covid/WFH that need video conferencing and who are not already using it? Is there pent-up demand ‘on the sidelines’ waiting for to begin using video conferencing?
Zoom is a spectacular company, with solid leadership. My spider senses tell me there will be a future entry point as a much better price than today. YMMV and that’s okay.
I just think that companies will be forced by different departments to use “Two”.
Webex or Office 365 Teams might be used internally, but sales, marketing, investor relations will use Zoom for “outbound” video conferencing. Getting to the conversation or the pitch without confusion or headaches is important.