Using my Anti-fragile framework, I wanted to show how Amazon stacks up.
“To make video communications frictionless.”
Simple: This is very simple.
Optionable: I’m not totally sure how optionable it is. Either it focuses on frictionless video or nothing. That said, diving into the company shows there is optionality.
+ 1.5 points
High-Switching Costs: This isn’t the primary moat. In fact, it seems like Zoom is so easy to use that onboarding happens relatively fast. Plus, the company has partnered with Atlassian, Dropbox, Google, LinkedIn, Microsoft, salesforce, and Slack. That means switching might mean changing larger providers and having to re-learn a new system. That said, again, I don’t consider this a huge moat.
Network Effects: This is the big one. There are two fronts that make network effects work. First, as more people join, more people will need to join to continue communicating. I’m well aware that this is mostly an in-house tool, so communicating between organizations (or even individuals…someday???) isn’t the primary concern. That said, once a single person tries out Zoom, it’s not hard to see how the network effects add more overall “hosts” to the product.,
Next, there’s also Zoom’s App Marketplace. This allows third-party app developers to build tools on top of the platform.
It’s worth pointing out here a few stats over the past three years.
Customers with at least 10 employees: 10,900 in 2016 – 25,800 in 2017 – 50,800 in 2018
Customers with at least $100K in annual subscription contracts: 54 in 2016 – 143 in 2017 – 344 in 2018.
And, by far, the most important, Dollar-based net expansion The company only started tracking this in 2017, and so only has three quarter’s worth of results. Those results, however, are very promising: 138%, 139%, and 140%, respectively
Like I said earlier, there’s a lot more optionality here than I originally expected. With a mission statement like it has, I don’t expect Zoom to expand outside of video. That said, I wouldn’t be totally shocked if a consumer-facing, subscription-based solution came out one day that would really get the network effects going. That said, it would need to be ridiculously differentiated from Skype or Facetime to succeed
Skin in the game
Role of founder: Eric Yuan founded the company and is still CEO
Insider Holdings Yuan owns 22% of Class B Shares
Glassdoor: The company has a 4.8 rating and Yuan a 98% approval rating. I read through many of the reviews. While a bunch are fluff, that’s pretty common. I zero in on the negative ones more. Here, they almost uniformly come from the salesforce. To be honest, I’m not overly concerned. As long as the customer service and engineers are happy, the investment shouldn’t be too much affected (though, of course, I wish the salesforce worked well, too).
Cash: $176 million
Free cash flow: $23 million
Obviously, this will significantly change. The cash balance should increase markedly after the IPO, but without a price point, it’s impossible to know what it’ll be. That being said, being FCF positive with no debt is enormously important. For now, I’m not giving it the full point, since cash is so low, but I leave the door open to changing it in the future.
Total Score: 10 points
I’ve run companies through this framework for well over a year, but I do it anew every time (I find that doing so…while laborious…forces me to be more aware of the current situation). This score puts ZOOM at the very top of all stocks.
Here’s the thing: it’s really tough for me to know just how wide the moat is. It’s not totally clear how high switching-costs are. I imagine that over time I’ll get better insight into this. For now, however, 10 is still a very high score.
What is Antifragile framework and how has it performed?
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