ZM Q1: What's better than perfect?

Investment Analysis Clubs Saul’s Investing Discussions
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A lot of people thought those of us bidding up ZM shares before this report were expecting too much. They predicted a disappointing quarter for Zoom because it was “priced to perfection.” Well, perhaps perfection wasn’t strong enough of a word. Just look:


**Revenue**
Fiscal Year    Q1     Q2     Q3     Q4
2019           60     75     90    106
2020          122    146    167    188
2021          __328   *500*__

**Customers with more than 10 employees**
Fiscal Year    Q1       Q2       Q3       Q4
2020         58,500   66,300   74,100   81,900
2021        **265,400**

This kind of growth doesn’t happen. I thought it would be great if they added 2x or 3x their usual amount of these larger customers. I said 50k or 100k might be possible. They added 183,500 customers with more than 10 employees.

Let me put that another way. They more than tripled the number of large customers they serve in 90 days. Probably less than 90 days, since I have to think February was more like their old run-rate.

Customers with 10 employees or less (I think this includes individuals like me and Saul and many of you) accounted for 30% of revenue. That’s almost $100 million this quarter. That equates to millions of customers paying for ZM…at least 1 or 2 million even if we assume some pay a lot more than the $15/month I pay. And yet, at still just 30% of Zoom’s revenue, any churn here will only hurt them minimally.

Then we see that they’re going to jump from 0.20 EPS this quarter (which wasn’t a huge jump from 0.15 last quarter) to 0.46 next quarter and 1.29 for the year! And that’s just guidance! Their actual EPS will be pushing 2 dollars for the year, I’m sure. What next year? $4? 5? 10? Forget PS ratio – they could soon have a PE ratio that’s extremely reasonable!

FCF was astounding. If deferred revenue can be anywhere near this going forward, this will make Zoom bulls ecstatic. Cash flows can fluctuate a lot, so I’m not going nuts with expectations, or comparing it to revenue or profit or anything else. But it was amazing and I expect it to be fantastic going forward.

This is all more than we could have hoped for. The revenue this quarter was in the range I expected, but the 500m guide for next quarter blew me away. To my eyes, there’s just nothing Zoom could have done any better.

I’ll leave you with two quotes from Eric:

The one thing we know for sure is the TAM is bigger than we thought before.

We will do all we can to truly deliver happiness to you.

As a customer and a shareholder, I can say, Happiness delivered.

Bear

PS Also, as Dan said, I ****ing love this guy. https://discussion.fool.com/zoom-ceo-eric-yuan-hero-34519852.asp…

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To my eyes, there’s just nothing Zoom could have done any better.

And I can’t believe that I was able to add a little to my Zoom position at $198.50 in the aftermarket yesterday!!! Who would have sold it down $10 on an earnings report like that???

Saul

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Saul wrote:

And I can’t believe that I was able to add a little to my Zoom position at $198.50 in the aftermarket yesterday!!!

Looks like you’ve recovered from that big 8% drop back in April that Tom Warren thought you were so upset over. :blush:

I’ve debated emailing him to thank him for his role (if any) in helping me and others add to Zoom at $136 back then.

I was a bit surprised by the run up on Monday and Tuesday on expectations of the earnings report, and although I expected great results, I also thought there would probably be some area that nay-sayers could jump on to find fault in and lead to a short term drop.

So far, it appears that no one is finding much to complain about with this report.

The TTM Net Dollar Expansion Rate is over 130% for the 8th consecutive quarter so they’re continuing to see solid growth from existing customers

As impressive as the YOY revenue growth is, the international growth is even more impressive. The growth from countries outside of the Americas went from 23.8 million in Q1 FY 2020 to 82.6 million in Q1 FY 2021. That’s still only 25% of their revenue share, which suggests they have a lot of potential growth ahead outside of the Americas.

All the best,

Raymond

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Great points, Raymond.

Before the whole pandemic, Zoom stated their TAM was something like $40bln (for whatever that’s worth) and the CEO mentioned their TAM has increased substantially yesterday. Even at $40 billion TAM, they will be at 5% of the market before year end so there is still plenty of room for growth.

The company does not disclose the actual NER, but I would wager it was 150% or higher this quarter and next, with all the additional upsells during this WFH.

Also agree with the international revenue front - Yuge opportunities abroad still!

Best,
Matt

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Based on the $1.8B full-year guidance, the table can be updated like so, roughly:

Revenue
Fiscal Year    Q1     Q2     Q3     Q4
2019           60     75     90    106
2020          122    146    167    188
2021          328    _500    **500    500**_

I assume they are just managing expectations so that significant “churn” will be accepted as ok and anything like business-as-usual will be a “surprise”. I’ve heard members of this board mention expectations between $2B and $2.5B for the full 2021 fiscal year. Here are a few spitballed scenarios just for fun:

Posted guidance (simply the above reformatted, with growth percentages under):


    Q1	  Q2	 Q3	 Q4  | THIS Q|	 Q2	 Q3	 Q4	| 2021 y/y
1) 122	 146	167	188  |	328  |	500	500	500	| $1.828B
    - 	 20%	14%	13%  |	74%  |	52%	 0%	 0%	|    193%

Assume some growth after guidance. If they were doing a low around 15% before they were a well known brand I think it is safe to project they will continue to do the same after, even as a bugger company.

									
2) 122	 146	167	188  |	328  |	500	575	661	| $2.064B
    -	 20%	14%	13%  |	74%  |	52%	15%	15%	|    231%

Assume continued pandemic-growth for full Q2, above guidance, and then apply ~15% as above.

	
3) 122	 146	167	188  |	328  |	774*	890	1020	| $3.012B
    -	 20%	14%	13%  |	74%  |	136%	15%	15%	|    383%

*$774M = Say Zoom was about to repeat a 13% quarter. They would have made $212M. This means the effects of COVID-19 was an extra $116M in 6 weeks, which would equate to a full month growth factor of 136% (the percentage if a second $116M was added on top). If this feat is repeated in Q2, it would result in a Q2 figure of $774M.

Maybe insane. Maybe they would have done 20% with virus-help. Maybe my math is way off? Please do check. So, how about splitting the difference in Q2 and keeping the rest…?:

	
4) 122	 146	167	188  |	328  |	637	730	840	| $2.535B
    -	 20%	14%	13%  |	74%  |	94%	15%	15%	|    383%

…so maybe this is how we get to $2.5B.

My confidence in my own modeling/math skill here is low, so please be kind to me, not the numbers :wink:

By the way, the video recording of the earnings presentation is up! https://zoom.us/rec/play/uZEpcLj9_Wg3TILBsQSDC_UtW47sLK6s0SM…

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Did I get all of that horribly wrong? I saw this quote from Saul:
https://discussion.fool.com/zoom-expectations-34523974.aspx
"…If revenue grew a huge 250% in the second half of the quarter, 250 and 80 average to up “just” 165% for the quarter. That’s certainly the absolute maximum you can imagine.

On the other hand, the July quarter (May, June, July), will be all the New Zoom, and revenue up 200% or 250% will mean up 200% or 250% for the whole quarter."

And then I saw the actual number was 169%? What is the equation/inputs there? I’ll re-run the above with the right way of thinking if I’m as wrong as I think I might be. I’m in this to learn and grow, after all. Sometimes that requires a willingness to “look stupid”.

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(250+80)/2 because 15 Feb is halfway…

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“(250+80)/2 because 15 Feb is halfway…”

I mean what are the revenue input numbers to get at the 250% and 80% figures. I know how to average 2 numbers, hah! Are those TTM whereas I used trailer-quarter-based numbers? Is what I posted above correct-enough in this regard?

Any thoughts on the modeling itself? I’m hoping to hear some debate about what is behind these numbers as well.

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“(250+80)/2 because 15 Feb is halfway…”

The quarter ended Apr 30 so 15 March was halfway, not 15 February.

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(250+80)/2 because 15 Feb is halfway…

(250+80)/2 because 15 MARCH is halfway…

Zoom fiscal year starts Feb 1.

Denny Schlesinger