The following are my notes from the Q/A portion of the earnings call that concluded 30 minutes ago.
CEO Eric Yuan and CFO Kelly Steckelberg provided answers to all questions.
I hope this is helpful information for everyone. Grateful beyond words for Saul and this amazing community of contributors and readers.
Best and Warmest Regards,
sjo
Q
ZM Phone as a % of sales
A
Fastest product line growth. Strategy is to sell into existing customer base. Churn rates have stabilized but are elevated compared to a year ago when pandemic had just started.
Q
ZM Phone. Where are you in the evolution of expanding sales channel partners and what’s differentiating ZM over other cloud-based options.
A
High confidence because of Zoom Phone’s alignment between Zoom Video, ZM Rooms, etc.
Q
Momentum Incremental User base is from the bottom up. Huge opportunity ahead of them. Their brand is very strong and a household brand.
A
Looking at international expansion as a huge opportunity
Q
What will ZM do with the $4B in cash?
A
Selective M&A and CAPX to build-out the platform
Q
What’s the plan for international expansion? What countries?
A
60% from up market and 40% from SMB market –so a huge opportunity exists internationally
Q
Leveraging your platform: any traction for other use cases?
A
Not just for knowledge workers, will hold Zoomtopia on Zoom platform again.
Q
ZM Phone, RE: 18 customers w/ more than 10,000 seats – How do you think about this going forward?
A
The reason ZM wins is because of the trust their existing customers have with ZM and the interoperability w/ ZM Room, etc.
Q
How are you thinking about investing in the direct sales force? Renewals and for ZM phone. How fast do you expect to grow your existing sales force?
A
Quota carrying reps and engineers are the two areas in which ZM will continue to invest. Reps interests are aligned w/ ZM’s interests because the reps are now compensated to make renewals happen.
Q
Where are other adjacencies? Build vs. Buy considering $ on their balance sheet?
A
Eric Yuan said “we’re transforming from a killer app company to a communications platform with additional use cases. No longer just a videoconferencing company anymore. Rather, we are an integrated communications platform.”
Q
Gross Margins for ZM phone?
A
Pre-pandemic, ZM phones were slightly under the gross margins of the ZM meetings. ZM phones margins are actually higher than ZM meetings per CFO.
Q
What’s the embedded assumption re: churn
A
Must think about online and direct. In direct business, there will be seasonality, especially w/ enterprise buyers. From online perspective, it’s more uncertain depending on when everyone returns to work.
Q
How is MSFT competition playing out? How do you feel about what they’re doing by giving away teams for free?
A
Eric Yuan said “MSFT Teams is very different. Millennials are 1/3 of the market and they want to use the best in breed of service aka Zoom. MUST look at the OKTA report. Zoom is for sure #1.” Zoom App is #5?? –(Couldn’t understand Erik). “This market is much larger than anyone really understands.”
Q
Education vertical: Your thoughts on the trajectory of this business? 125,000 K-12 customers that are free and will you automatically turn-off the free app and how will you monetize this group of users?
A
There will likely be a hybrid approach in the future of distance learning and to parent teacher conferences and meetings. ZM will continue to do the right thing to minimize the impact to learning. Not sure what that is yet per CFO
Q
How much of the adds came from enterprises moving to ZM phone as existing customers?
A
They don’t specifically break it out.
Q
As customer experience becomes a bigger deal for enterprises, re: embedding ZM into existing apps, how do you plan to do this?
A
API’s and Zoom Apps, for people-centric industries, approve expense report and consumer apps, Zoom will double down on expanding their apps-based usage by integrating with other apps/platforms per Eric Yuan.
Q
ZM phone vs. ZM meetings: Is there a rule of thumb w/ zoom licenses to ZM use.
A
Companies are purchasing a corresponding 1:1 ratio of Zoom licenses and Zoom phones per CFO.
Q
Last year, there was more focus on security/privacy, what will you focus on this year?
A
Continue to innovate in order to become a platform company rather than a videoconferencing company per Eric Yuan.
Q
How has the world changed? Has the cost structure permanently changed? Work from home vs. office.
A
Can hire best talent from anywhere in the world, without them having to physically move their residence/where they live. CFO said they have not yet factored this into their projections/guidance and once they have more clarity on this they will factor this into their projections.
ADDITIONAL REMARKS STATED PRIOR TO THE ANALYST Q/A PORTION OF THE CALL:
Zoom currently has 4,400 employees.
Zoom now refers to itself as a unified communications platform and no longer “just” a videoconference company.
Zoom Phone
USC –University of Southern California has purchased +24,000 zoom phones
Equinix – purchased +10,000 zoom phones
Universal Music Group – purchased ___? zoom phones to replace their on-prem phones
OKTA
ZM was by far the preferred enterprise app by active unique users
Frost & Sullivan
ZM company of the year award
ZM phone grew incredibly and this portion of the TAM is forecast to grow to 24 Billion by 2024
Milestones:
ZM phone has 18 customers with +10,000 seats
Net dollar expansion rate in customers with 10 or more employees exceeded 130% and came from these three areas: Licenses, Zoom Phone and Zoom Room
Zoom has 467,000 customers with more than 10 employees (this represented 63% of revenue)
Growth in FY21 was mainly driven by new customers
Continued expansion in the up market and still see a lot of opportunity ahead.
YOY reduction in gross margin is mainly due to providing free K-12 services
40.9% operating margin up from 37.4% in Q3.
The number of businesses who are billed monthly is now at 50%, which is up from 40% who were billed monthly in the past.
RPO is up 190%
70% of RPO will be recognized over the next 12 months as compared to roughly 64% of RPO a year ago.
FY22 –will increase CAPX to build new data ctrs
Guidance:
FY22 revenue outlook 900-905M for Q1
FY 22 revenue outlook for FY22 is 3.78B (44%)
FY 22 Operating Income outlook is $295 to $300M
FY 22 EPS outlook is $3.59-$3.65