$ZM Q2 Earnings

Investment Analysis Clubs Saul’s Investing Discussions
#1

https://investors.zoom.us/news-releases/news-release-details…

“Meh” Q2 revenue of $1.02 B for 54% YoY and 6.8% sequentially.

Guidance was $1.015 to $1.02 B which is guiding for a sequential revenue decline (not sure how that’s possible with an NRR of 130%, unless you’re churning really bad). This means Q4 revenue is going to be up 19% YoY in Q4.

All customer-related growth is slowing down too:

  • Customers increased to 504,900 up 36% YoY or 1.6% sequentially

  • 100k customers increased 130.6% YoY or 14% sequentially, a big slowdown from the 21.6% in Q1 or 27.5% in Q4 of last year.

I’m out.

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#2

I’m out!

Hi RunnerGuy,

I’m just puzzled at how you could have been surprised, how you could have been “in” up to here. I described EXACTLY what was going to happen to Zoom six months ago, and not only in posts but in my end of the month summaries. I also pointed out how the sequential revenue growth rate was plummeting each successive quarter (it was 102% four quarters ago, now it’s 6.8%). I really did try to warn people. You could say I pounded the table on this one.

Saul

79 Likes
#3

Hi Saul,

That’s a great question and I would love your insight on a follow-up question.

To answer your question, I was using historical guidance and “beat & raise” as a proxy. They guided for $990 M (3.5% sequentially) but historically have beaten by 5.5-7.5% in the last 2 quarters, so I was expecting at least a 5.5% beat which would have brought revenue in at $1.05 B, good for 9.2% QoQ which would have been good for 65% this year and 40% growth the last 2 quarters assuming they kept it up (I just assumed Zoom Phone and enterprise customers would pickup too).

Given that Zoom had a low 30s TTM EV/S valuation (relative to its peers) for what I thought was at least a 40% grower the last 2 quarters, I just figured that they were getting beat up unfairly and could see some multiple expansion if they demonstrated they weren’t just a “COVID” stock. Clearly, I was wrong in assuming they could continue to do at least 8-9% QoQ. Also, probably another big reason was my cost basis was between $60-100, so didn’t really want to take the huge capital gains hit.

So given your note above, I was curious about your views on DocuSign, they too have had several quarters of slowing sequential revenue growth, but the market seemed to shrug it off. I guess, what do you think is different about Zoom’s slowing QoQ growth vs. DocuSign’s? Is it just the severity of the slowing (going from 100% to 8% vs. 15% to 9%).

RG

6 Likes
#4

Hi again RG

and could see some multiple expansion if they demonstrated they weren’t just a “COVID” stock.

Zoom isn’t just a Covid COMPANY as no one is going to stop their Zoom subscription just because Covid is over. After all, being able to meet with friends or family in other cities, or even across town, is worth a few dollars a month, and companies are going to continue having people work from home and use Zoom instead of airfares, hotels and restaurants. But Zoom WAS just a Covid STOCK, as they pretty much conquered the world in nine months and have little if any more place to grow.

So given your note above, I was curious about your views on DocuSign

As far as Docusign I just wrote up my views a dozen posts back at #79425.

Best,

Saul

20 Likes
#5

Your analyses of ETSY and ZM must be in the KB if they are not already.

I think they would be textbook illustrations of key principles contained therein (making the exposition of principles easier to digest).

13 Likes
#6

I wish I listened to Saul. As a long term follower of the Motley Fool, the mantra of buy and hold held me back from selling. Plus, my cost basis is around $110, and inadvertently have been price anchoring to that price…

Saul laid down his reasoning in his December 2020 summary and reduced his once large position that was 25% of his portfolio to 3% and then eventually getting out entirely…

Here is a quick recap of what Saul wrote in his December 2020 End of the Month Summary:

https://discussion.fool.com/my-portfolio-at-the-end-of-2020-3470…

"Zoom, is currently my smallest position, greatly reduced in size at 3.6%. I continued to trim it in December. Zoom went from an obscure little company to a household word known by almost everyone in a couple of months. Their April and July quarters were two of the most amazing quarters ever seen by man, with revenue up 169% yoy, and then up 355% yoy. Those revenues were up 74%, and then up 102%, SEQUENTIALLY! Their Adjusted Net Income in their July quarter went from $24 million to $275 million, and it was all like that. For example, Free Cash Flow went from $17 million to $373 million, and Customers with over 10 employees grew by 458%.

However, then came the October quarter and their sequential revenue growth fell from 102% in July to just 17% in October. Their sequential free cash flow growth fell from 826% in April to 48% in July, and then to 4% in October. After you have conquered the world, what can you do for an encore?

Yes, they grew revenue by 367% if you consider it yoy, but they didn’t actually GROW revenue by 367% in the quarter. As I posted on the board, that was “a dead man walking”. They grew revenue 17% during the quarter. The rest of that revenue represents what their recurring revenue grew to during the April and July quarters. You have to understand that revenue being up 367% year-over-year sounds very impressive, but it was basically their steady state recurring revenue now, plus 17%. Zoom is still a terrific company but their video business can’t grow that fast any more. It’s already done it all. And it’s so big that new products will have trouble budging the needle. Which is why I cut my position way down (see the December monthly summary above), and which I warned about over and over."

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#7

I wish I listened to Saul. As a long term follower of the Motley Fool, the mantra of buy and hold held me back from selling. Plus, my cost basis is around $110, and inadvertently have been price anchoring to that price…

… They grew revenue 17% during the quarter. …

Lucky me, I did listen. Thank you Saul.

This was what sealed my decision: the 17% sequential growth.

Zoom had become a household name. All the old and young people in my life know about them. That last quarter with 17% sequential growth told me they were done with explosive growth. In one short year, Zoom has gone from explosive grower to utility stock, but without a utility stock dividend. Time to move on.

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